The Accuracy of Zestimates: A Conversation with Rich Barton

During the National Association of Realtors Conference and Expo in Las Vegas, I had an opportunity to hear Rich Barton, Chairman and CEO of Zillow.com, speak about Zillow's interactions and future plans for the real estate community. He was an excellent speaker, very animated in his remarks, and actually very funny. I had a chance to speak with him following his presentation. The information was enlightening, and I feel much more prepared now to deal with another of technology's challenges.

In case you've been living under a rock for the last two years, Zestimates are the estimated values that Zillow places on homes. Real estate agents around the country have been complaining about Zestimates since they were introduced to the public. The argument was that homesellers tend to hold those Zestimates in high regard, while agents understood that they were, in fact, only estimates.

The disparity between the Zestimate and an agent's price point for a home caused many an agent to swear, sometimes vehemently at Zillow for existing. Sellers insisted, and are still insisting, that they price their homes according to their Zestimate, which is usually too high for the current market.

Why the difference in value? How does Zillow arrive at a Zestimate? What are Zillow's sources?

Barton very emphatically stated that Zillow is not in the business of selling real estate. The purpose of Zestimates, as he stated during his presentation, is to encourage a dialogue between Realtors and sellers. A Zestimate is a starting point. He acknowledged the fact that Zestimates are inaccurate, reporting that nationally, Zillow has a 7.2% margin of error.

"In some areas, we're pretty close," Barton said. "In others, well, we're working on it." Barton said all of their information comes from "verifiable" sources, such as raw data from county records on property transactions and information from tax assessments. That data is fed into an algorithm, which produces the Zestimate.

Barton said they were interested in talking to Multiple Listing Services about datafeeds, citing them as a great source of information, but he indicated that there were no formal agreements.

Therefore, the alleged inaccuracies in Zillow's figures appear to stem from two possible issues: either their algorithm is flawed, or their data sources are at best inaccurate and at worst they are just flat-out wrong.

I am not a mathematician, so I can not comment on the first possibility. However, analyzing the data from Kitsap County, the second possibility seems very likely to me.

I randomly chose three homes in the 98311 zip code of Fairgrounds and Central Kitsap that sold in the last two weeks, and compared their sold price to their tax assessed value. I chose homes that sold in the last two weeks because Zillow is anywhere from two to six weeks behind recording dates, so the Zestimate has probably not yet been updated. In the 98311 zip code of Fairgrounds and Central Kitsap, homes sold for 95.86% less than their Zillow Zestimate.

Now, we should compare the sold price to the tax assessed value of those same properties. Finally, how does the tax assessed value compare to the Zillow Zestimate?

Does this information shed any light on the Zestimate vs. price point quandary? Not for me. As a matter of fact, the results here are not what I had expected. Given the information sources that Zillow uses, the massive amount of information that is not figured into Zillow's algorithm (such as condition of the home), and that the valuation is done by a computer, Zillow's Zestimates are much closer overall to the actual sale data obtained through our Multiple Listing Service.

Would I be concerned about taking a listing at $306,000 when my price point told me the house was worth only $265,000? Definitely! As a professional Realtor, would I explain to the seller the reasons his home may not be worth what Zillow thinks it is? Of course, that's my job! Would I be able to walk away from a seller who insists on pricing his home $40,000 too high? For everyone's sake, I hope so!

Barton is vehement about the fact that Zillow was not meant to replace your real estate agent's expertise and knowledge. Zillow is a fun tool, but remember its purpose. It is a starting point, an opening for buyers and sellers to come together to discuss real estate and home sales.

Thanks to Rich Barton for taking time out of his busy schedule at the NAR Conference and Expo to talk to fledgling blogger.