Congratulations, you are among the millions of Americans who choose to nurse their New Years Eve hangover by searching for homes online. In fact, New Years Day ranks among the top three most active days for people to search for a home online, along with July 6 and the weekend after Thanksgiving.
Question: How accurate and reliable are online home value estimates like Zestimates (Zillow) and Redfin Estimates? My neighbor used his Zestimate to determine the asking price of his home. Can I trust that number?
Answer: Online estimates, like Zestimates and Redfin Estimates, are similar to doing a Rough Order of Magnitude estimate on a project, meaning it’s a good way to quickly determine approximate value. I suggest that clients only trust Zestimates/Redfin Estimates within +/- 10 percent of the value it provides.
In fact, I think that it’s irresponsible for Zestimates and other online estimates to be listed so prominently on their respective sites without an obvious disclaimer (readers must click for a short disclaimer). The fact that it’s a single number, down to the dollar, not a range or rounded falsely suggests it is highly accurate.
Why It’s Wrong
Zestimates, Redfin Estimates and other online estimates rely on public information like square footage, lot size, number of bedrooms, year built, tax appraisal (inaccurate), etc. and past sales in the area, but have no way of knowing details that drive true market value like quality of lot, natural light exposure, curb appeal, and age of major systems like appliances, roof and windows.
These details are critical to determining the actual market value and cannot be priced in without a full inspection of the home and understanding of their influence on local sales. In fact, there’s currently a lawsuit filed against Zillow for inaccurate Zestimates.
Zillow Admits Inaccuracies, Worse In Arlington
Zillow itself acknowledges that its Zestimates are inaccurate, stating that it has a median error rate of 5 percent (I’m sure the average error rate is much higher), only 53.9 percent of estimates are within 5 percent of the sale price, and only 75.6 percent are within 10 percent of the sale price. These last two stats are probably median error rates, with even worse error rates if you look at averages.
Further, because they’re national stats, they benefit from the large number of communities around the country that are full of nearly identical homes. When housing inventory is homogenous and there’s little variation in pricing by neighborhood (common in much of the country, not in Arlington), it’s much easier for online estimates to be accurate. I’m sure that the margin of error in Arlington and Northern Virginia is worse than the national numbers.
Comparing Popular Online Estimates
Industry spends a lot of money developing these estimate tools, so let’s take a look at how some of the most popular sites for estimates compare to each other. I’ve chosen to compare estimates on a few randomly selected properties in different sub-markets from Zillow, Redfin, and REALTORS Property Resource (RPR, created by the National Association of REALTORS for agents).
Note: there’s less variation between estimates on properties recently sold (recent sale price factors heavily) and listed properties (asking price factors into estimate formulas). Estimates below are rounded to nearest $1,000.
- Crystal City, condo: Zillow ($376,000), Redfin ($418,000), RPR ($395,000)
- Fairlington/Shirlington, condo: Zillow ($384,000), Redfin ($429,000), RPR ($231,000)
- Rosslyn-area, townhouse: Zillow ($957,000), Redfin ($818,000), RPR (unavailable)
- Donaldson Run, single family home: Zillow ($1,063,000), Redfin ($1,175,000), RPR ($1,125,000)
Unlisted Property (no recent sale):
- Lyon Village, single family home: Zillow ($3,465,000), Redfin ($1,821,000), RPR ($2,751,000)
How To Price Your Home
With unreliable estimates from online tools and limited or no access to data on sales from 12+ months, it’s difficult for homeowners or anybody without access to your home and historical data to accurately determine the market value of your home. I frequently start with sales dating back 5 years when I price a home in order to capture true market data and trends, as 6-12 months simply isn’t enough in most cases.
If you want historical data on comparable or neighborhood sales for your home or would like an opinion on the market value of your home, shoot me an email at Eli@EliResidential.com or give me a call at (703) 539-2529 and I’ll be happy to help.