MarketWatch, authored by David Howell, is published on a bi-monthly basis by McEnearney Associates, Inc. It provides useful and insightful summaries of current housing market trends. MarketWatch statistics include housing sales from all companies serving our Virginia - Washington DC - Maryland Metropolitan area.
Zillow's "Zestimates" Are a Bit Better Than They Used To Be
But They Are Still Inexplicably Bad
We have just completed our fifth and most comprehensive evaluation of the accuracy of Zillow.com’s “Zestimate,” the major calling card for their website. Going back to 2010, Zillow has been able to predict the market value of the homes they evaluate within 5%, high or low, a little over half the time. Evaluating 1,000 properties late this summer, they got that “close” roughly 64% of the time.
Among the reasons for that marginal improvement is that Zillow now has a direct feed from the region’s multiple listing system, giving them more timely and comprehensive information on available and sold listings. Yet Zillow seemingly ignores the most important information of all: the list price of the property, especially when there is a pending contract.
In the table below, you can see the evolution of Zillow’s estimates – how often they get within 20%, 10% and 5% of the market value – and they have gotten a little better over time. The last two lines show the “outliers,” just how far off the mark Zillow can be. (As an example, in one case in our most recent analysis, the Zestimate was 744% higher than the actual sales price!) The last column is Realtor® pricing, showing how close the original list price of a home was to the actual sales price.
So with just two pieces of information – the original list price and the fact that the property has a pending offer – the consumer can get closer to predicting the sales price than Zillow does. The list price is within 5% of the sales price almost 90% of the time. Zillow’s model is so reliant on their sophisticated algorithms and data scientists that they choose to ignore the power of a seller and their Realtor® evaluating the property and market conditions to decide on an offering price. And if Zillow is this far off the mark when they have list price info, just how far off do you think they are for home that aren’t on the market?
Why does Zillow produce these estimates of market value? According to their website, “The purpose of the Zestimate is provide data in a user-friendly format to promote transparent real estate markets and allow people to make informed decisions.” We agree with the first part of that statement, but not the second. If the purpose was to help people “make informed decisions,” then Zillow wouldn’t publish such misleading and inaccurate information. The real purpose is to drive traffic to Zillow.com. We get it – that’s the business they are in and they do that exceptionally well. As Realtors®, we live in a world where accuracy and accountability matter, and Zillow doesn’t. We succeed or fail based on our knowledge and service; Zillow succeeds or fails based on their ability to sell leads to agents, and that depends on web traffic. To be clear, we have no problem with Zillow’s business model or the fact that they publish estimates of property values. We simply don’t want people to think they are making “informed decisions” based on these numbers.