I was on Zillow the other day looking at real estate when it occurred to me that I never really touched upon the so-called “Zestimates” offered up by the real estate portal.
Most consumers have heard of them, but they’ve been largely written off by industry folk as “unreliable” and various other expletives.
First things first, let’s define a Zestimate. By Zillow’s own account, a Zestimate is the “estimated market value” of a property.
By estimated, they mean a home value assigned using proprietary computer algorithms developed by statisticians.
They also refer to Zestimates as a “starting point in determining a home’s value,” which is important to note when browsing around Zillow.
A Zestimate is computed based on data, not human touch, vision, interaction, etc. And we all know how computers can fall short…
Where to Find a Zestimate?
If you look up any property on Zillow, whether it’s for sale or not, you’ll see a Zestimate at the very top of the page.
Well, only about 100 million homes have an associated Zestimate, so you could get extremely unlucky, but chances are the property you’re researching will have one.
So a 3-bedroom, 2-bathroom single-family residence built in 1982 in Your Town, USA may be valued at $250,000, based on data culled by Zillow.
You’ll also see a value range, which displays the high and low value of the property.
A large range indicates less data/higher volatility, whereas a small range means Zillow has plenty of information to make an informed decision.
In other words, if there are lots of sales in a given area where homes are pretty uniform, the Zestimate will probably be more accurate.
Conversely, if the property is unique and in a sparsely populated area where homes sell a few times a year, the Zestimate may be a far cry from its true value.
Finally, you’ll also see a so-called “Rent Zestimate,” which put simply, is the estimated monthly rental price of the property.
A Zestimate Is Not an Appraisal!
This is where things get ugly. A lot of homeowners, and I suppose some in the industry, seem to get tripped up into thinking a Zestimate is an appraisal.
Zillow explains right on its informational page that a Zestimate is not an appraisal, and cannot be used in place of an appraisal.
Why? Because Zillow hasn’t physically inspected your home, like a real appraiser would.
And the data they receive may be dated, incomplete or inaccurate, especially if recent changes have been made to the home in question, or if a home has sold nearby.
Regardless, you can’t get a mortgage with a Zestimate. An appraisal from a certified appraiser will be required by the mortgage lender to obtain financing.
So what does that tell us? Well, it means Zestimates are exactly what Zillow says they are, a starting point. An idea, a ballpark, an estimation of a home’s value using a computer.
In other words, take them with a huge grain of salt. But still brag to your friends if and when your Zestimate rises.
Read more: How much house can I afford?