It’s true. And they’ll tell you so themselves. According to a recent Wall Street Journal article (not that an article had to uncover it – the site clearly states this itself), valuations of homes on Zillow are oftentimes 20% or even 50% higher than an eventual sale price (see article).
It’s no surprise that “today, before a shopper ever meets an agent, he can check out neighborhoods and sales on sites such as Redfin.com and take online video tours to narrow down houses” (see article). Together, cites the Wall Street Journal article, “four of the biggest sites that offer home-value estimates get 100 million visits a month, with web surfers using them to determine what to ask or bid for a home, or whether to refinance.”
With Zillow, Trulia, Homes.com and the like drawing the first attention from home buyers, it’s perhaps surprising that they can get away with being so inaccurate. However, Zillow will be the first to tell you that these estimates are not calculated by humans, but by algorithms that have a wide margin of error. Traditionally, an appraiser will determine the value of a home using comparable homes within a certain area; however, with simply raw data to go on, these algorithms are just not as accurate.
The Atlanta Journal-Constitution cites one consumer saying what some people might think Realtors are worried about, namely that, “The scary thing that the industry needs to be careful of is that the consumer knows more than that practitioner because of these devices” (see article).
However, what needs to be remedied is the over-reliance on online estimates by consumers because, as any of them will tell you, nothing can substitute (nor will it as it pertains to loans and other legalities) a human calculation of a home’s value. Zillow is an amazing resource – it lets you surf homes and take a first look as you being to search for your new home. Keep in mind, though, that searching for a new home takes more than a first look – it takes in-depth research, reliable data and statistics and a professional savvy enough to help you navigate the market.
So as you’re looking around on Zillow, soak up all that it has to offer, but take those Zestimates with a grain of salt.