By John Wake – Real Estate Decoded
You have a home for sale and Zillow’s Zestimate for the house is way too low.
To make matters worse, Zillow puts their (low) estimate of your home’s value right below your list price so everyone that looks at your house on Zillow thinks your home is way overpriced.
You’re starting to wonder if the low Zestimate explains the lowball offer you got or why your home hasn’t sold yet.
Low vs. High Zestimates
Low Zestimates can certainly complicate things for home sellers but, counterintuitively, high Zestimates can be even more damaging to home sellers, that is, if the sellers actually believe those high Zestimates.
Low Zestimates. Home sellers with low Zestimates will tend to immediately dismiss them as inaccurate.
High Zestimates. Some sellers with high Zestimates will tend to immediately anchor on the high estimates and think they’re accurate, holy and just.
There’s this natural emotional response – home sellers kind of fall in love with a high estimated value. They tend to get starry-eyed and start imagining how they’ll spend all that money. So they tend to overprice their homes. Overpricing is very expensive to home sellers but that’s a post for another day.
Most sellers tend to accept high Zestimates as gospel.
If you’re reading this, however, you probably have a low Zestimate. When people get low Zestimates, they start to search Google.
Top 20 search terms with “zestimate” include: “zestimate accurate,” “is zestimate accurate,” and “zestimate accuracy.” I bet the vast majority of the people making those searches have low Zestimates.
Visualize the Inaccuracy
As a former economist, I’m going to visually show you how accurate/inaccurate Zestimates are. If more people understood the true level of accuracy/inaccuracy of Zillow Zestimates, the damage to home sellers and buyers would be lessened. That’s my goal here, anyway.
I know I can at least help you better understand the accuracy of Zillow Zestimates.
That will help you when dealing with home buyers or sellers that throw inaccurate Zestimates in your face during contract negotiations.
Be sure and read my suggested response below.
I’m afraid, however, that I’m not going to be able to stop home sellers from falling in love with high Zestimates and I’m not going to be able to stop home buyers from feeling fear when offering fair market value for homes that have low Zestimates.
Zestimate Accuracy Table
Zillow is actually very good at disclosing the accuracy of their Zestimates.
I think it’s partly a CYA move to protect Zillow against complaints about misleading people when their Zestimates are inaccurate. I’ll paraphrase, “We told you in detail right on the website how inaccurate Zestimates are so stop complaining about how inaccurate Zestimates are!”
Nevertheless, I love their honesty and transparency.
Zillow calculates the accuracy of Zestimates by comparing the actual sale prices of homes to the Zillow Zestimates for those same homes right before they sold.
Zillow’s typical error. You can see from the table above that the accuracy varies from city to city but overall the median error rate for all Zillow Zestimates in the U.S. is 6.1%, according to Zillow.
I applied their median error of 6.1% to Zillow’s own estimate of the median sale price in the U.S. in May 2016 of $229,737 and got a typical error of $14,000
THE TYPICAL ZILLOW ZESTIMATE ERROR IS $14,000, BUT YOU DON’T KNOW IF IT’S $14,000 TOO HIGH OR $14,000 TOO LOW. AND IT GETS WORSE BECAUSE HALF THE TIME ZILLOW ZESTIMATES ARE OFF BY MORE THAN $14,000, SOMETIMES A LOT MORE THAN $14,000.
On one hand, it’s amazing that Zillow can get so close to the actual sale prices just by looking at public and other data on the houses.
But on the other hand, for home buyers and sellers, the estimates are so inaccurate they’re unusable for pricing homes.
Visualize the Errors
I took Zillow’s error rates for a sample city, Denver, from the table above and created the graph below so you can visualize the accuracy of Zillow Zestimates.
Shotgun! Using Zillow’s own numbers, you can see their Zestimates are scattershot. Although the 2016 estimates are much better, they’re still way too scattered to use when pricing your home. They’re a great way to find out the general ballpark value of your home but that’s about it.
Example. Let’s say a Denver home has a fair market value of $300,000. According to Zillow’s Zestimate Accuracy Table, 10% of their Zestimate prices were off my more than 20% from the actual sale prices. Half of that 10% are Zestimates that are too high by 20% or more, and half are Zestimates that are too low by 20% or more.
That means you have a 5% chance Zillow will give you a Zestimate of $360,000 OR MORE, and a 5% chance Zillow will give you a Zestimate of $240,00 OR LESS. Yikes!
Here’s a talking point you can generate to give to buyers who bring up low Zestimates.
ZILLOW MAKES IT VERY CLEAR THAT ZESTIMATES ARE NOT APPRAISALS. ZILLOW SAYS THAT FOR A HOME IN THE [$X] PRICE RANGE IN [YOUR CITY], THEIR TYPICAL ERROR IS $X [[MEDIAN ERROR FOR YOUR CITY IN ZESTIMATE ACCURACY TABLE] X [YOUR LIST PRICE]], BUT YOU DON’T KNOW IF IT’S $X TOO HIGH OR $X TOO LOW. AND IT GETS WORSE BECAUSE HALF THE TIME ZILLOW ZESTIMATES ARE OFF BY MORE THAN $X, SOMETIMES A LOT MORE THAN $X.
Here’s how it would look for a $300,000 home in Denver.
ZILLOW MAKES IT VERY CLEAR THAT ZESTIMATES ARE NOT APPRAISALS. IN FACT, ZILLOW SAYS THAT FOR A HOME IN THE $300,000 PRICE RANGE IN DENVER, THEIR TYPICAL ERROR IS $16,800, BUT YOU DON’T KNOW IF IT’S $16,800 TOO HIGH OR $16,800 TOO LOW. AND IT GETS WORSE BECAUSE HALF THE TIME ZILLOW ZESTIMATES ARE OFF BY MORE THAN $16,800, SOMETIMES A LOT MORE THAN $16,800.
If I sure hope this information has been helpful to you. I know having a low Zestimate is a tough problem to have.