How accurate is a Zillow Zestimate?

I have to admit that Zillow has an incredibly cool and user friendly website, and they continue to grow in popularity with consumers. When we started designing the BuildingStapleton.com website we looked at Zillow's design for tips on what consumers are looking for in a real estate website. The one nagging issue for me has always been the accuracy of Zillow's 'Zestimate' - their automated estimate of a home's value.

Can an automated system accurately predict a home's value?

A few years ago my parents sold their home. Zillow estimated the value to be in the low $200,000s, yet their home sold quickly (about two weeks) in the mid $300,000 range. Why was Zillow so far off? Because their had been very few sales in their neighborhood in the previous 5-10 years, so Zillow was relying on outdated data.

In Stapleton, another challenge for automated systems is that you will often find two very different builders across the street from one another. When an automated system compares homes so close together, it must 'assume' that they are comparable (other than square footage). This can result in a devaluation of the custom home that sits across the street from a basic tract home (which in turn shows an inflated value).

Zillow's measurement of its own accuracy

Recently I learned about an often overlooked link on Zillow's own website. Right there on the bottom of their home page, in pale grey print against the blue background, is a link that says, 'About Zestimates.' This link takes you to a chart showing Zillow's own measure of their accuracy.  Here's the chart as of today (March 22, 2011) with Denver's stats highlighted:

According to their chart, Zillow rates their accuracy with four stars.  Sounds great, right?  

Read the rest of the data, and it says that 28% of the time the 'Zestimate' is within 5% of the actual sale price. That means that 72% of the time the Zestimate is more than 5% off. On a $400,000 home, that means the Zestimate would be off by $20,000. More than half the time (52%), the Zestimate is at least 10% off... or $40,000 on a $400,000 sale! Remeber, this is Zillow's own analysis of their accuracy, not something provided by a competing website (or a disgruntled real estate agent).

As I said, Zillow is a cool website, and their technology is amazing, but would you consider a $40,000 error in the valuation of your home to be accurate?

If you're looking for a true valuation of your home's current market value, we'd be happy to provide it to you at no charge. Just fill out this form. We look at recent sales and market conditions, combined with our personal knowledge of the local real estate market. For an even more accurate estimate, we'd be happy to come over and personally look at your home!