Real Estate Industry Calls Zestimate’s Accuracy Into Question, Even After Upgrades
Zillow recently announced the launch of its revised Zestimate model, alleging a more accurate assessment of home values. But who is this data for and how precise is it? Recent moves suggest the motive for the portal-turned-brokerage is simply to funnel more seller leads to Zillow Homes‘ pipeline.
“Let’s keep in mind that Zillow’s primary interest in tweaking the Zestimate is to support Zillow Offers; to increase the number of sellers who are inspired by their home’s Zestimate to request an appointment with a Zillow broker,” says Jim Smith, broker/owner, Golden Real Estate.
“It’s a great prospecting tool for them! Get your foot in the door, do a real CMA and buy the home at a price which, by design, is not full value since Zillow isn’t in the business of losing money on resales! A cynic might describe that business model as ‘bait and switch,'” adds Smith.
Zillow actually began monetizing their Zestimate in February of 2021, utilizing the home value estimate as a bargaining chip for the brokerage’s Zillow Offers program. For about 900K eligible homes across 23 real estate markets, the Zestimate transforms into an initial cash offer price for those utilizing the iBuyer option.
According to the company, the upgraded valuation model uses neural networks to leverage deeper property data history, including sales transactions, tax assessments and public records. Due to this, Zillow says it has improved the Zestimate’s national median error by a full percentage point (to 6.9%) for more than 104 million homes.
“Since we introduced the Zestimate in 2006, we have never stopped innovating in order to provide consumers with the most accurate home valuations,” said Dr. Stan Humphries, Zillow chief analytics officer and creator of the Zestimate, in a statement. “The new architecture we’re debuting today represents another significant step forward in our efforts to harness big data to create more certainty for consumers, which leads to better decisions.”
While Zillow has made some improvement to its home valuation model, however, some say the change isn’t drastic enough to be deemed “accurate.”
“Zestimates are definitely impacting the real estate business and how sellers are viewing their current market value. Zestimates are inaccurate on so many different levels,” says Jacqueline Balza, broker of record at Inspired Dream Real Estate, who argues that Zillow still does not take into account all of the property information needed to provide an educated valuation estimate.
“Zestimates do not properly take the age and current conditions of a home into consideration when giving current market value. Because it’s a computer, it doesn’t know what the current condition is. Only a real estate professional can go in and advise the owner on current market value due to the current condition,” adds Balza.
Carrie Lukins, broker/owner at Sellstate Alliance Realty & Property Management agrees—the onus for home valuations should be on real estate agents, not technology.
“Though Zillow may have updated their algorithms for Zestimates, a computer never takes the place of a local expert. A local REALTOR® who has intimate knowledge of your individual market will always be far more superior than Zillow,” says Lukins.
“Their data is culled from the entire nation, not your individual neighborhood,” adds Lukins, who is only incentivized to compete even more amid the increase in data adoption. “We can always appreciate that Zillow is trying to squeeze out the local expert; that just encourages us to educate the consumer and our local community about our value and expertise.”
Not all practitioners hold a pessimistic view. While in the minority, some believe Zillow’s continued foray into big data signals improved resources for agents, home sellers and prospective buyers.
“Zillow is already the most visited real estate website in the country, and that is due, in large part, to their Zestimates,” says Kofi Nartey, broker, Society Real Estate + Development. “With greater accuracy, Zillow will continue to find more alignment with the comps their agent partners are running. Overall, it becomes a win for consumers and agents.”
The overwhelming majority, however, say Zillow’s Zestimates only take away from the accuracy provided by real estate agents and appraisers.
“From my perspective, these computer algorithms have little to no impact as they use a limited set of data to come up with estimates,” says Vini Moolchandani, a broker with Compass Real Estate. “Machine algorithms can solve the objective puzzle to some extent based on availability of data. On the other hand, appraisers and REALTORS® use lots of additional data points that are not possible for any machine to incorporate in their estimates.”
Sebastian Hurtado, an agent working under Balza’s brokerage, says all the evidence one needs is in Zillow’s history.
“The consumer is quick to run to Zillow to get their information, not taking into account the flaws in the algorithm,” says Hurtado. “Sellers get a false idea of what their home is worth. Five years ago, Zillow’s CEO’s home sold for 40% under its Zestimate. That should be all the proof you need to know that the expertise of a professional isn’t quite ready to be replaced by a computerized system.”
Liz Dominguez is RISMedia’s senior online editor. Email her your real estate news ideas to firstname.lastname@example.org.