From Erika Eaton’s blog
On a home-specific basis, I would not use the “Zestimate” for determining the value of a property. But, if you can’t resist the urge, the “Zestimate” is more accurate in mid-range neighborhoods, with similar homes, than upscale areas like Buckhead, Morningside, Sandy Springs, etc… Keep in mind, Zillow’s median error for Atlanta is 21.4%.
Zillow clearly states that it’s “a starting point in determining a home’s value.” I’m not sure if it’s even a proper starting point on a micro basis. Their disclaimer says that anyone trying to determine the value of homes should get a CMA done by a Realtor and/or have an appraisal done by a professional appraiser.
The Zestimate uses a proprietary algorithm, with undisclosed factors, to determine a home’s value. Obviously, the main factor is recent sales prices for the area, and I’m sure the formula takes into account square footage, rooms, age, etc… But, the formula doesn’t take the condition of the home into account, or any other characteristics specific to a particular home. The house specific factors, many of which are intangible, that cannot be objectively inputed to an algorithm, have been coined “unzillowables.”
My guess is if your home is average for the neighborhood, meaning renovations and upgrages are in-line with the area, then the Zestimate has a decent chance of being accurate. The Wall Street Journal did and an analysis of “Zestimates,” compared to actual sales prices, and had this to say:
But just how accurate is it? A Wall Street Journal analysis of 1,000 recent home sales shows that Zillow’s “Zestimates” often are very good, frequently within a few percentage points of the actual price paid. But when Zillow is bad, it can be terrible — off the mark by more than 25% on one in 10 homes. In one case it was off by $2 million.
That being said, I think Zillow has some amazing tools when it comes to identifying Atlanta market trends and snapshots for particular areas. Since Zillow’s formulas are based on average selling prices for particular areas, it’s great for determining values and trends by neighborhood, zip code or town. The charts and data inputs are more extensive and intuitive than many of the subscription based real estate data services. Increasingly, I find myself analyzing the Atlanta housing market with Zillow.