Selling A Home April 4, 2022

How Online Real Estate Property Estimators Work

We’ve all done it. We may not be looking to buy or sell our home, but out of curiosity we check an online property value estimator to see how much our place is worth.

“Jackpot,” I thought when I saw my home’s value had increased by $186,000! Then the person in me who understands how the real estate market works said, “Settle down. It’s not really worth that much.”

Whether you get your estimate on Zillow, Trulia, Red Fin, Realtor.com, or any of the other online real estate value estimators, it’s important to understand that these aren’t even really ballpark numbers.

The granddaddy of online property value estimators is Zillow. The company calls its estimates “Zestimates.” On its webpage, Zillow states that it calculates a Zestimate using an algorithm that “incorporates data from county and tax assessor records and direct feeds from hundreds of multiple listing services and brokerages.” The Zestimate also incorporates facts and features that a homeowner can update.

According to Zillow, the Zestimate accounts for variables such as:

  • Home characteristics including square footage, location or the number of bathrooms
  • Unique features like hardwood floors, granite countertops or a landscaped backyard
  • On-market data such as listing price, description, comparable homes in the area and days on the market
  • Off-market data — tax assessments, prior sales and other publicly available records

So, how accurate are real estate website estimates in the real world? Let’s take Zillow’s example of Baltimore. Zillow claims the median error rate of its Zestimate for Baltimore is 1.5 percent. Of the homes sold in Baltimore, 88.1 percent of the sales prices fall within 5 percent of the margin of error; 96.7 percent fall within 10 percent of the margin of error; and 98.8 percent fall within 20 percent of the margin of error.

While the algorithms employed by Zillow and other estimators are very powerful, they are only as good as the data they have access to.  Since much of the home data is based on data from the last time the home sold, there are many variables these algorithms cannot account for including out of date records, personal maintenance of the property, and improvements made since the last time the home was on market.

As much as we would love to believe the online property value estimators, appraisers are still the only ones who can give you a more realistic picture of how accurate real estate website estimates are. Plus, mortgage lenders don’t approve loans based on Zestimates.

According to Berry, appraisers value your home by using the sales comparison approach, which is the most commonly used approach in most markets. A sales comparison provides an opinion of value that is based on comparing recently sold nearby properties with similar characteristics.

But, as we all know, in the final assessment your home is only worth what someone is willing to pay for it.