Zillows Zestimate home value estimates are calculated using a combination of historical transactions for each piece of real estate (nearly 100 million homes and lots) included in its database and a proprietary algorithm developed by Zillow that uses hundreds of data points to predict real estate values for properties in each of the 50 states.
Zillow’s Zestimate figures can sometimes closely match what the actual value of the home is, but often they are off by more than 20%.
Zillow is a real estate information portal and marketplace that uses its extensive database of real estate listings to educate and provide other services for home owners, potential home buyers, real estate agents, lenders, and others interested in the details of real estate throughout the United States.
What is Zillow’s Zestimate?
Zillow’s most popular tool is an estimate of home values that it calls Zestimate. A Zestimate is an approximation that Zillow makes about the value of each of the homes in its database. Zillow’s Zestimate is calculated from a combination of factors, including:
- Historical transactions related to a property
- Zillow’s machine learning algorithms, which are capable of integrating hundreds of data points related to any particular home
- Accounting for basic home characteristics like square footage and number of bedrooms and bathrooms
- Upgrade features for homes, such as granite counter tops, landscaping, and hardwood flooring
- Information pulled from active listings
- Information pulled from off market sources, such as publicly available records
Zestimate Accuracy Depends Upon Accessible Information
The accuracy of these Zestimate figures is highly dependent upon how much information Zestimate has accessible from county and tax records about any particular property along with the public data available to them from “for sale” listings and related information.
Active Listings Versus Off-Market Properties
Zillow’s Zestimate calculations are much more accurate for properties actively being listed for sale than for off-market listings because there is typically much more data available for active listings. Also, Zestimates are generally much more accurate for bigger municipalities than for rural areas, where there are less data points available for Zillow to piece together their estimates.
For instance, the charts below compare Zestimate data for active listings in several states versus off market listings in those same states. For active listings in California, Zestimate predictions were within 20% of the sales prices of homes 99% of the time. For off market properties, that number dropped to 85.4%. Similar drops can be seen for other states in the chart.
For the United States market overall, the active listings are currently (July, 2019) within 5% of the sales price of homes 83.7% of the time. Off market properties are within that same band (5% of the sales price of the home) only 36.2% of of the time, which represents a major drop in consistency.
It makes sense that off market properties would be more of a moving target for estimating value compared to properties that have recent transactional data.
Zillow’s Transparency About Zestimate Accuracy
Zillow is open with statistical information about the accuracy and confidence of their Zestimate tool. In their description page for Zestimate, Zillow is clear that their Zestimate approximation should not be a substitute for other methods of evaluating a property’s value, including an appraisal done by a local certified appraiser or a comparative market analysis done by a local real estate agent.