As a first-time buyer who is looking to get the best deal on a new home, you’ve done your research online and think you have a good handle on the average home price in your desired area. What an exciting feeling! But just how accurate are the top online house listing services?
One popular site, Zillow, has their own name for estimating the value of a house, the “Zestimate.” Is the Zestimate a good way to estimate your housing costs? Or will the Zestimate get you in over your head? Let’s examine the Zestimate and see just how accurate it is.
What Does “Zestimate” Mean?
When perusing the site and saving your favorite dream homes, you may notice a home’s listed price with a “Zestimate” listed underneath. Zillow posts a Zestimate with every home and rental property that it has listed. These prices are estimated value of a particular home.
This estimate is based on characteristics of the home such as square footage, number of bathrooms, and size of lot, etc. The Zestimate is usually much lower than the listed price, which of course makes buyers extremely excited. Sellers are usually alarmed when the Zestimate for their home is less than their asking price. But both sellers and buyers need to know that there is a margin of error when it comes to the Zestimate.
What does this “margin” mean exactly? Well, there are many factors that go into a home appraisal. Lot size, architectural style, and number of bathrooms all affect the value of a home. As does current market prices and the previous sales history of the home. How is the Zestimate different from the listed price?
Related: 5 Things Almost Every First-Time Homeowner Forgets to Budget For
What Is Zestimate Based On?
How accurate is the Zestimate? It may surprise you to learn that Zillow creates these prices based largely on average home prices by area and on user-submitted data. This means that home owners are allowed to and encouraged to enter the information regarding the homes they are trying to sell. The accuracy of such an estimate relies largely on the availability of data from an area and how completely a home seller enters information for the property. This means that if there hasn’t been any user submitted information in the area you want to live recently, you may be getting old information.
The Zestimate is also estimated using property tax information and previous sales prices. Of course, if the home has never been sold before, there isn’t much information to base this on. Many markets are not even covered by Zillow. This is because, while larger cities may have a wealth of information regarding home sales, small towns with little sales activity wouldn’t have information provided.
Related: Buying Your First House: Timeline and Checklist
How Reliable Is Zillow’s Zestimate?
While all this may result in an accurate house price, we encourage homebuyers to continue their own research. In fact, you should consult a licensed REALTOR to find out the comparative listed market price of any property. Further, you need to find a licensed appraiser to give you an unbiased, accurate appraisal of the home. Also, it’s important to actually visit the property to assess it’s value on your own.
The most important thing you must know is that Zillow acknowledges that it’s Zestimate is often inaccurate, by as much as 6% in some areas! In terms of housing costs, this estimate can be bad for both sellers and buyers. How can you make sure you get the most accurate price?
Overall, the Zestimate is just a starting point to finding out a home’s true value. Remember that the Zestimate is merely an estimate based largely on the information provided by the seller. If the seller does not fill out the home’s information accurately, the home may be under- or over-valued. It is also important to realize that not every available home in an area is listed on Zillow. Working with a professional licensed realtor is the best way to find accurate home prices as well as yet-to-be listed properties in your desired location.
