Home owners across the country love to debate whether their Zestimates are too high or too low. When it comes time to sell, the estimated market value calculated by Zillow can be the jumping off point for an interesting discussion between real estate agents and sellers.
Spencer Rascoff, CEO of the Seattle-based real estate media website, sold a home in the city’s Madison Park neighborhood for $1.05 million at the end of February. On March 1, the day after the sale, the Zestimate for the home reached $1.75 million. On Zillow’s website today, it’s come down to $1.575 million.
An article last week on Inman, the real estate news website, portrayed the discrepancy as a way for agents to demonstrate the shortcomings of Zestimates, which the company already acknowledges are a starting point in determining a home’s value and not an official appraisal.
The company’s data coverage and accuracy web page indicates that there are 102.7 million homes with Zestimates on Zillow. Nationally, the Zestimate has a median error rate of 7.9 percent, which means half of the Zestimates in an area are closer than the error percentage and half are farther off. In Seattle, the median error is 6.1 percent.
The Rascoff property, which the CEO was not living in at the time, falls into a category of about 20 percent of sales in which the Zestimate misses the sale price by more than 20 percent.
“A miss like this is pretty atypical for us,” Stan Humphries, chief analytics officer at Zillow Group, told GeekWire on Monday. “But I would say, finding cases where either a human or a machine misprices a house are not uncommon either. You can certainly find cases where humans priced a home where it’s a big miss for them as well, where maybe the home was listed for $7 million and it sold for 5.”
Zillow’s obvious hope, especially when it comes to an examination of the Zestimate on a home sold buy its CEO, is that people would instead focus on a larger set of data points to understand Zestimate accuracy.
Humphries said the slight edge does go to humans over automated valuation models when it comes to pricing a home.
“It’s something we’ve always been very transparent about,” Humphries said. “The Zestimate from our perspective is a starting point and is one of many opinions of value people should collect if they’re going to transact real estate.”
So why did the Zestimate miss on this particular piece of property?
The house at 3808 E. Madison St. sits on a triangular-shaped lot and it’s also on a corner on a busy arterial. The Zestimate was being calculated against homes in the area on rectangular lots, which command a higher price because the lots provide more utility.
“Shape of the parcel and placement on arterial is an area of active research in our valuation group,” Humphries said. “We just haven’t yet cracked the nut on how to fully get that baked into the valuations. Those two end up making a lower market value for that property than you would think otherwise looking at all the other facts.”
Humphries said people can be mislead by not recognizing that price is a random variable and that the range of prices that a home could sell for creates these opinions of value.
“That’s not to minimize this case,” Humphries said, acknowledging that “we definitely spent some time looking at this one. We look at misses in terms of understanding where the models went wrong. … The computer should have done better in this case.”
In the meantime, whether Spencer Rascoff’s agent needed the advice or not, the company recommends its five tips for agents to use when talking to clients about their Zestimates.