A Zestimate Gone Right: While Zillow's valuations of homes can vary widely from the selling price, this Ponderosa Ranchos home's 'Zestimate' lines up exactly with the listing price. Homebuyers, however, should be aware that Zillow's valuations are sometimes based on months-old data, and can vary substantially from appraisals. Courtesy photo

Take Zillow With a Grain of 'Zalt'

Published: March 10, 2011

by Maura Mack

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I was recently working with a new client who was looking to invest in a property. We were heavy in negotiations when he decided to run the property’s value (or “Zestimate” in Zillow terms) through Zillow, a free real estate valuation and sales information website. The next thing I knew, we were cancelling our offer and backing out. My client said that the property was overpriced according to Zillow, a tool he heavily relies on to value real estate. Despite being provided with recent data such as sold comparisons of similar homes in the neighborhood that had closed in the past three months, average sold prices, and average sold price-per-foot statistics, as well as getting feedback from a partner who walked into at least 12 houses in this neighborhood with me over the course of a week, these hard facts did not stand up to my client’s perception of Zillow’s accuracy.

Don’t get me wrong; Zillow is a good tool for getting a feel for value in a particular area. But it is certainly not the only tool, as Zillow will be the first to tell you. In fact, right on their website, Nevada County is listed as having a 14 percent median error rate with only 22 percent of Zestimates hitting within 5 percent of sales price and 38 percent of Zestimates within 10 percent of sales price. That is a very rough estimate.

Here is another interesting disclaimer taken off of Zillow’s site in February: “Note … The Data herein is computed for the three month period ending September 20, 2010.”

The data that Zillow is gathering can have a statistical lag time of at least several months. In other words, the sold homes in the area that Zillow is basing current values, or Zestimates, on can be as old as four to seven months. When a lender does an appraisal on a property, they typically will not consider sold comparisons that date back further than three months, especially in today’s constantly changing market where data that is not current is also not accurate.

Even in this age of social networking with resources like Google Earth, Zillow, Case Shiller, and many more that help us find immediate answers to all of our research questions, real estate is still local. It is subjective. You need to get inside and look around. A view from space is not the whole picture. A median price is not the entire valuation. It is still a home.