Inside the housing industry, consternation over “Zestimates,” the property value estimation tool built into every listing on Zillow (Z), isn’t anything new.
For years, Realtors, real estate agents, and brokers have questioned the accuracy of Zestimates and its benefit for buyers and sellers. But a new report from the Los Angeles Times delves into Zestimates, finding that the margin of error for the property value estimates can be massive in some areas.
From the Los Angeles Times report:
Are Zestimates accurate? And if they're off the mark, how far off? Zillow CEO Spencer Rascoff answered that they're "a good starting point" but that nationwide Zestimates have a "median error rate" of about 8%.
Whoa. That sounds high. On a $500,000 house, that would be a $40,000 disparity — a lot of money on the table — and could create problems. But here's something Rascoff was not asked about: Localized median error rates on Zestimates sometimes far exceed the national median, which raises the odds that sellers and buyers will have conflicts over pricing.
According to the LA Times report, the Zestimates in some states and counties have enormous margins of error, including Somerset County, Maryland, where the median valuation error rate is 42%.
Again from the LA Times report:
Last July, Robert Earl, an agent with Choice Homes Team in the Charlottesville, Va., area, examined selling prices and Zestimates of all 21 homes sold that month in the nearby community of Lake Monticello. On 17 sales Zillow overestimated values, including two houses that sold for 61% below the Zestimate.