Americans love the Zestimate, but Zillow’s latest business problems suggest you should think twice before using the popular home value algorithm to make any big real estate decisions.
Zillow announced Tuesday that it is leaving the home-flipping business after three years. The decision raises questions not only about the company’s future and the state of the housing market, but also about how good the company is at predicting home prices. The critical question for homebuyers and sellers: Can you trust the Zestimate?
Home price predictions have always been a big part of Zillow’s appeal. When Barton and his co-founders launched Zillow.com in 2006, the “Zestimate” was a hail mary. Their original idea to auction houses floundered, so they cooked up a plan to estimate the value of every home in America. It drew so many people on day one that the site crashed.
Today, the company publishes value estimates for 104 million properties and the Zestimate is featured prominently on home listing pages across the site. However, questions about the Zestimate have plagued ZIllow from the start. The real estate press pounced when then-CEO Spencer Rascoff sold a home for 40% less than the Zestimate in 2016. A few years later, the company offered $1 million to data scientists who could most improve accuracy.
Through it all, Zillow has maintained that the figure is a place to start and does not replace a professional appraisal — while also claiming high accuracy rates and eventually using the Zestimate in its offers to buy homes. “We leveraged the Zestimate in our Zillow Offers operations the same way we encourage the public to use it: as a starting point,” said spokesperson Viet Shelton.
How is the Zestimate calculated?
Zillow does not share the exact formula for its estimates, but says it uses “statistical and machine learning models” to “examine hundreds of data points” for each home. Data points include things like square footage, location and the number of bedrooms and bathrooms. The Zestimate also takes into account tax assessments, prior sales and, if the home is on market, the listing price and how long it has been available. In the most recent update to the formula in June, Zillow says it made the estimates more responsive to market trends and seasonality.
The information Zillow uses largely comes from property records, which are publicly available in most states, as well as from local multiple listing services. In most markets real estate agents use multiple listing services (the MLS) to share information about for-sale properties. In addition to the Zestimate, one of Zillow’s early innovations was making the information on these once-private databases available to anyone with an internet connection.
Zillow also allows homeowners to update facts about their …….
Source: https://money.com/zillow-zestimate-accuracy-flipping/