In the unpredictable US real estate market, one term has frequently emerged in conversations between homeowners, agents, and financial institutions: Zestimate. This term is the name given for Zillow’s estimated market value of a property based on algorithms calculated using both public and user submitted data. Zestimates have been a hot topic of conversation.
What Zestimate does is nothing short of revolutionary. Provide some pertinent details like zip code, address and number and types of rooms and Zillow processes them in a flash to generate an estimate of your property value. The emphasis is on the word estimate.
While Zestimate is doing a great deal for an average American who knows nothing about property valuations, it has become nothing short of a scourge for real estate agents across the country. People generally take Zillow’s word for their house’s value and deem it as a gospel of real estate. What they don’t consider is that Zillow’s Zestimates are as inaccurate as any other computer-generated estimates out there. The company’s CEO, Spencer Rascoff, himself admits that Zestimates tend to have a median error rate of 8%. This may not sound all that much but in the world of real estate dealings, where transactions start from hundreds of thousands of dollars, this is way too much.
And that’s is not all. Zestimate has a median error of 8%. This means half the time the actual error is greater than 8%! Also, Zestimates’ accuracy varies greatly through the country. Take Somerset County in Maryland, for example, where the median disparity in property valuation is a jaw-dropping 42%! Furthermore, in a study conducted by Choice Homes Team in Charlottesville, Virginia, in July last year, it was found Zestimate overestimated the value of 80% of the homes sold during that month. In two cases, it overvalued homes by an astounding 61%!
What this goes on to show is that computers are still not ready to rule the real estate market just yet. No algorithm, no matter how sophisticated, can replace the appraisals done by real professionals. An algorithm can mix and match data on locations but it will never know the ground realities. It cannot possibly know the condition of the front yard or renovation work done on the attic of the house in question. Therefore, without understanding many variables that it has no possible way to ascertain, a true appraisal is still a distant dream for Zillow.