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How to Read a Zestimate

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What is the Zestimate? It is Zillow’s estimated home market value that is computed by a formula they created. It is estimated from public data and factors in the house’s location and market conditions as well as specific home features like the number of bedrooms and the square footage. It is not an appraisal. Zillow removes transfers between family members, foreclosures, auctions, and quit claims.

How accurate is the Zestimate? Zillow posts some stats on their website here. The Zestimate has a median error rate nationally of 5%. In DC, Zillow claims they are accurate within 5% of the sale price 57.7% of the time and within 10%, 79.6% of the time. Their median error is 4.1%.

Let’s look at an example. An error of 5% in a sale price of $400,000 is $20,000. It is important to understand that you will not be able to ascertain whether this is $20k high or low. That margin error will occur 57.7% of the time. But note that 79.6% of the time, the uncertainty in their sale estimate is double that figure, at $40k. That is a huge degree of uncertainty! And when you look at our sale-to-list price ratios that kind of error becomes really problematic.

What contributes to Zestimate errors? There are many factors that contribute to pricing a home for sale and require specific market knowledge about the home and the area. Zestimates tend to be more accurate in large developments where the houses are very similar in lot size, house size, style, and finishes.

Basic error can come simply from inaccurate information. If the number of bedrooms, bathrooms, square footage, lot size, etc. are inaccurate in the public record, then the Zestimate will also be inaccurate. The Zestimate cannot take into account what the insides of a house actually look like! Improvements and renovations that a homeowner has made are not included.

What should you do with your estimate? This is a good place to start your understanding of price or to look at historical data. But keep in mind it is just an estimate, so you won’t want to use it for pricing your house for sale. Now that you are in the ballpark, connect with your Realtor to review your area market stats and comps in your neighborhood.