Everybody agrees it is very convenient and nice to be able to have an estimate of one’s house value by a simple click on Zillow’s website.
Many owners are very proud of their Zestimate (when it is higher than what their house is really worth) and quite dissatisfied when it is lower than what their house is worth.
So where does the truth lie? Let’s see what Zillow has to say about it. Their site has many disclaimers regarding the fact that the Zestimate is simply an estimate and not an actual market value or appraisal. (ref: http://www.zillow.com/zestimate/). This is very understandable; an algorithm cannot be a perfect valuation of a house. The algorithm does not take into consideration the condition of the house, the upgrades or any other specific property feature.
Hence the Zestimate is not accurate, no surprise in this, the really question is how far off is it?
Zillow publishes their own estimate: (http://www.zillow.com/zestimate/#acc)
It is particularly inaccurate in Houston, and there is a reason for that: Texas is a ‘non-disclosure state’ hence actual sales price of a house is not public information. In Houston particularly, with no zoning, there is a wide disparity of values within a small perimeter which makes it harder for a computer driven model to make sense out of it.
To Zillow’s credit, its values tend to be about right for recent properties (less than five years old). On the other end, this is not very difficult to achieve because typically newer homes are valued close to their appraised value.
In older neighborhood, condition of properties varies a lot from house to house, as some have been updated whereas others are left in their original state. In these neighborhood, Zestimate tend to be way off by a huge margin and can definitely not be trusted.
I know of an investor who got burned on a flip deal because he believed a very optimistic Zestimate.
The serious buyers and sellers will get a proper comparative market analysis or broker price estimate from a licensed agent. The method is similar to what appraiser uses: find similar properties in condition, age, square footage, etc. that have sold in the last 6 months and from that define a market value.