The Truth About Appraisals vs. Zestimates: [One Appraisers Case Study]

Last updated on May 22nd, 2024 at 03:25 pm

As a homeowner, it’s natural to want a current and accurate estimate of your home’s value. 

This is why it’s not shocking that so many people turn to popular sites like Zillow for an automated valuation, or “Zestimate”. 

But how much should you rely on the data you’re getting?

We sought out to discover the truth with a head to head comparison – true and verified APPRAISALS VS. ZESTIMATES.

Read through to discover the results of our case study to get a sense of just how reliable Zillow’s “zestimates” are.

Click here to jump straight to the results.

View Zillow’s accuracy stats here.

Sounds decent, right? Close enough to base some real numbers on, according to team Zillow.

I mean, even appraisers can’t be 100% accurate all the time.

(We do try, though)

Well, after years of collecting data and 20 years of experience completing home valuations, I’m sharing my most recent case study to gain some insight into what we’re all wondering:

How much faith can we have in the Zillow Zestimate?

If you’re basing important financial decisions on the Zillow “Zestimate”, I encourage you to read through and consider the findings here for obtaining a true estimate of your home’s worth.

I’ve been a certified real estate appraiser in NY for almost 20 years, specializing in various types of residential property.

The home types I’ve appraised cover a wide range of styles, from single-family homes, condos, and manufactured homes to multi-family properties and million-dollar mansions.

Throughout this time, I’ve worked hand in hand with lenders and homeowners who have used automated valuation models (AVMs) like Zillow as a basis for list prices, refinancing decisions, and mortgage lending.

In short, I have seen firsthand the impact tools like these can have on the perception of property value.

Because Zillow has grown into a major player in the real estate world in recent years, I felt it was time to shed some light on the accuracy of the beloved “zestimate”.

Putting all pre-judgment aside, let’s just see how the Zestimate stacks up against the professionals in home valuation.

First, let’s compare how Zillow is sourcing its data versus a licensed or certified appraiser.

(In short, an actual person.)

Zillow mines its data from public records and user-submitted data.

To me, this sounds like the data could be as fresh as your morning coffee (like if the home just sold last month), or as stale as last month’s bread.

“Stale” data would include dated tax records and possibly nothing more, depending on when it was last updated.

The Zestimate claims to account for things like square footage, location, room counts, and other “current data” available, as well as seasonal changes and market trends.

“Current data” includes factors like a recent list price or how many days a home has been on the market.

A professional appraisal, on the other hand, is a combination of factors.

The appraisal will also include data crunching and mathematical formulas – these are typically based on recent sales data and calculations for depreciation, costs to build, rental income, etc. depending on the situation.

The other part of an appraisal is more of a subjective opinion.

This part will be based on a personal inspection of the property, years of training, hours of classwork and continuing education, and most importantly… familiarity and personal experience within a particular area.

An appraiser, of course, will usually inspect the property in person and can view its exact location and how it conforms to the rest of the neighborhood. 

Why does this matter?

Well, because in the real estate world, the small nuances matter.

A zestimate won’t catch that your kitchen was recently updated with the latest trending finishes, or that your neighborhood has become the latest hot spot for families or professionals.

On the flip side of that, Zillow also won’t know if there’s a power line running through the yard or a Walmart in the back yard, and may not take that into account when providing estimates or comparing data.

Zestimates and appraisals, although they have similar goals, take different approaches to arrive at that final number.

Now that we know where the data is coming from, let’s get down to the details of how we’re going to test the accuracy of Zillow’s claims.  

The first step in this case study was to collect data on homes that have both available “zestimates” and recent, professional appraisal values.

Once the data is collected and organized, we’ll compare the two values to see how closely they align, if at all.

This will give us an idea of how reliable the Zestimate algorithm really is.

Once the sample data is gathered, we can calculate the margin of error between the appraisals vs. zestimates and reveal any patterns that emerge.

Let’s go!

For this case study, I looked at a sample of over 100 homes that myself or one of our other certified appraisers has personally inspected and appraised in the Central New York area.

The property types range from small condos or townhomes to elaborate single-family homes, and cover the full range of values and neighborhoods in a five county area.

A wide range of architectural styles, square footage, year built, and amenities were used to make the sample as representative of as many different variables as possible.

Homes that have recently sold or are currently listed for sale are considered “on-market” properties by Zillow,  since they have readily available data to rely on.

On-market data would include their current list price or a recent sale price, which is readily available as a matter of public record in most states.

Zillow considers off-market homes to be those that are not currently listed for sale and have no recently available sale price to rely on.

The data they are able to source for off-market homes is obviously more limited.

I’ve included both on-market and off-market homes in this study.

Appraisals completed on “off-market homes” are for reasons such as refinancing, obtaining a home equity loan, challenging a tax assessment, or for pre-listing purposes for homeowners that are about to list a home for sale and are trying to determine a list price.

Data for on-market homes was analyzed separately from what Zillow refers to as off-market since the availability of reliable data is different.

This will allow us to closely examine how accurately Zillow’s algorithm predicted the home value compared to the actual appraised value. 

Let’s review the data, then we’ll go over some takeaways and come to a final consensus on accuracy.

*Actual street addresses for completed appraisals are not shown for confidentiality reasons.

The following spreadsheet shows the data analyzed for “on market” homes, or homes with a recently posted sale price.

The spreadsheet below shows data analyzed for “off market” homes, or homes which have not sold recently. Data for an accurate value would be more limited for automated valuation models like Zillow.

Now that I’ve revealed the data sample, what is the takeaway… how accurate is the Zillow “zestimate”? 

Our study revealed that for on market homes, or homes with a recently recorded sale price, the Zillow zestimate had an average error rate of 5.3%.

The data also revealed that in the majority of cases (66%), the homes were overvalued by Zillow from anywhere from 1-7%. 34% of the homes were slightly undervalued.

This is above what’s reported by Zillow, which claims a 2.4% error rate.

It’s also worth noting that, in many cases, the Zillow estimate was much further off prior to any recent sales data becoming available.

Once a home sold, I found that the Zestimate for that property jumped drastically in many cases.

What does this mean, exactly?

Let’s say for example, that Zillow estimates a home to be worth $300,000.

The home then sells for $250,000, at which point the sale price is made available to the public.

Zillow then takes that sale price and revises their estimate to $255,000, thus allowing them to claim an error rate of 2%, ($5,000 in this case), since the estimate has now been revised to fall within a small percentage of the known sale price.

Soo.. is their error rate really 2%?

Or are they just revising their estimates to closely match the most recent sale price… thus claiming a high rate of accuracy since their “revised” estimate closely matches the price the home JUST sold for?

This would explain why their “zestimates” for off-market homes are so far off, as you’ll see below.

These results were much worse.

My case study revealed an average error rate of over 30%, from a sample of about 80 off-market homes.

A few were close, with the lowest being around 2% off, and the highest being a whopping 516% off.

Over 500% off!!?

My 10 year old could guess a home’s value and be more accurate than that.

I found that the ratio of homes being overvalued to undervalued was fairly close, at 54% and 46%, respectively.

Multi family homes, or other home types like condos or vacant land had very limited data, if any estimate at all.

Maybe Zillow didn’t want to even attempt a guess at unique home types.

The Bottom Line is This:

Folks, don’t rely on Zillow to provide you with a true estimate of your homes value.

Unless, of course, the home has just recently sold.

A recent sale price is the best indicator of actual market value that you’ll find without hiring a licensed appraiser.

But if you know what the home just sold for, you don’t really need Zillows zestimate to begin with, do you?

The idea of obtaining a quick estimate of your home’s value is attractive.

However, Zillow’s zestimate and similar automated value models are, more often than not, inaccurate and untrustworthy.

Relying on these values could potentially cause more harm than benefit. 

In Zillow’s defense, they do provide a disclaimer that their Zestimate IS NOT an appraisal and can’t be used in place of an appraisal.

But… here’s the problem with relying on Zillow:

There seems to be a widespread belief that Zillow’s zestimates are generally accurate, lacking other available data.

This perception is bolstered by Zillow’s dominance in search results when you type in an individual property address.

With limited access to accurate data, homeowners and buyers alike are inclined to use the “zestimate” as a starting point for making important financial decisions.

But.. as we’ve discovered… the reliability of these estimates is questionable at best, at least until a home is actually sold and this data becomes publicly available.

This should caution any home seller from relying on this data for important decisions such as a starting list price.  

A skewed Zillow estimate used as a basis for a list price may deter buyers or mislead sellers. Homeowners – you could potentially be leaving thousands of dollars on the table. 

There appears to be a need to re-assess how Zillow’s off-market estimates and accuracy rates are presented to the public.

The fact that Zillow proclaims a 2.4% rate of accuracy for on-market homes and 7.49% for off-market homes is misleading, at best. 

My Take: Take Zillow’s zestimates with an enormous grain of salt. Your best bet is to hire an appraiser for the most accurate home estimate. At the very least, obtain a CMA (Comparative Market Analysis) from a local realtor who’s familiar with your area.

Most of us have taken a peek at our own home’s value on Zillow… How accurate do you think your “zestimate” is?