Myth Monday: Zillow Estimates Are Always Accurate

Myth: “Zillow says my house is worth $325,000, so that's what it's worth.”

Reality: A Zillow Zestimate can be a useful piece of information, but it is still an automated estimate—not an appraisal, a Comparative Market Analysis, or a guaranteed selling price.

I use technology and real estate data every day. I love having more information available to buyers and sellers.

But we also have to understand what that information can—and cannot—tell us.

A computer can analyze a tremendous amount of data.

What it can't do is walk through your front door.

And when we're determining what buyers may actually pay for your home, that matters.

What Is a Zestimate?

Zillow's Zestimate is an automated valuation model, commonly called an AVM.

It uses available data and computer algorithms to estimate a property's market value.

That can include information such as:

• Public property records

• Property characteristics

• Tax information

• Sales history

• Comparable sales

• Market activity

• Information submitted or updated on Zillow

That's a lot of useful data.

But Zillow itself explains that a Zestimate is not an appraisal.

That's an important distinction.

Zillow Has Never Been Inside Your House

Let's say there are two ranch homes on the same street.

Both are approximately 1,600 square feet.

Both have three bedrooms.

Both have two bathrooms.

Both were built around the same time.

On paper, they look very similar.

But let's walk inside.

House #1 has an updated kitchen, remodeled bathrooms, newer flooring, replacement windows, updated HVAC, a finished basement, beautiful landscaping, and has been meticulously maintained.

House #2 hasn't been updated in 30 years, has worn flooring, an older kitchen, deferred maintenance, water staining in the basement, and an aging HVAC system.

A computer may know quite a bit about both properties.

But it may not fully understand the difference in their actual condition and buyer appeal.

A buyer walking through them certainly will.

Condition Is Difficult for an Algorithm to Measure

This is one of the biggest challenges with automated home valuations.

How does an algorithm know that you just spent $35,000 remodeling your kitchen?

How does it know your hardwood floors are beautifully refinished?

How does it know your basement smells damp?

How does it know your roof is near the end of its useful life?

How does it know your house has incredible natural light?

How does it know the house next door hasn't been maintained?

Some improvements and property information may eventually become part of available data.

Others may not.

And even when an algorithm knows an improvement exists, determining exactly how much buyers in that particular market will pay for it is another question.

Square Footage Can Be Misleading

You've heard me talk about this before.

Not all square footage is necessarily equal.

A home might have:

1,500 square feet above grade

plus

1,200 square feet of beautifully finished basement space.

Another home might have 2,700 square feet entirely above grade.

Those aren't automatically equivalent properties.

Basement finish, ceiling height, walk-out access, natural light, layout, quality, and functionality can all affect how buyers perceive the space.

Numbers alone don't always tell the complete story.

Location Gets Very Specific in Real Estate

We always hear:

Location, location, location.

But location isn't just the ZIP code.

Sometimes value changes from one neighborhood to another.

Sometimes it changes within the same subdivision.

A property may back up to woods.

Another may back up to a busy road.

One may have a fantastic view.

Another may sit on a particularly desirable lot.

One may have additional acreage.

Another may have a steep backyard.

Two homes can be geographically close and still have meaningful differences in market appeal.

That's where local market knowledge becomes extremely important.

Comparable Sales Aren't Just "Homes Nearby"

One of the most important parts of determining market value is selecting appropriate comparable properties.

And this is where experience matters.

The closest sale geographically isn't necessarily the best comparable.

I may consider:

Location.

Style.

Age.

Square footage.

Lot.

Garage.

Basement.

Condition.

Updates.

Bedrooms and bathrooms.

Quality.

Date of sale.

Market conditions.

And other features.

Then I look at the differences.

Finding comps is easy. Choosing the right comps is the skill.

What If There Aren't Many Comparable Sales?

Automated valuations can become more challenging in areas where properties are very different from one another or where there haven't been many recent sales.

That's particularly relevant in smaller markets and rural areas.

Imagine trying to value:

A log home on acreage.

A historic Victorian.

A custom-built property.

A house with multiple outbuildings.

A home on 15 acres.

A unique luxury property.

A mixed-use property.

A highly customized home.

There may not be another nearly identical property that sold three blocks away last month.

In those situations, determining value requires more interpretation.

Updates Don't Always Equal What They Cost

Here's another issue.

Suppose you spend $50,000 renovating your home.

Does Zillow simply add $50,000 to the Zestimate?

No.

And frankly, neither should a real estate agent or appraiser.

As we've discussed in another Myth Monday:

Cost does not automatically equal value.

Buyers and the market determine what an improvement contributes to a property's value.

That requires looking at actual market behavior.

Zestimate and Appraisal Are Not the Same Thing

These terms sometimes get mixed together.

A Zestimate is an automated estimate generated by Zillow.

A Comparative Market Analysis (CMA) is typically prepared by a real estate professional using market data, comparable properties, and knowledge of the property and local market.

An appraisal is an independent opinion of value prepared by a licensed or certified appraiser for a specific purpose.

They aren't interchangeable.

And none of them is literally the same thing as a buyer making an offer.

Ultimately, the Market Has the Final Say

We can analyze data all day long.

Zillow can estimate.

I can prepare a CMA.

An appraiser can provide an opinion of value.

The seller can choose an asking price.

But once a property hits the open market, something very important happens:

Buyers respond.

Do they schedule showings?

Do they make offers?

Do multiple buyers compete?

Does the home sit?

What are comparable homes selling for?

That's real-world market feedback.

Ultimately, a home's market value is closely tied to what a ready, willing, and able buyer will pay under the circumstances of the market.

Can a Zestimate Be Right?

Absolutely.

Sometimes Zillow may be surprisingly close.

If you're in a neighborhood with many similar homes and lots of recent comparable sales, an automated valuation may have strong data to work with.

Other times, it may be off.

That's why I wouldn't tell someone:

“Ignore Zillow.”

I'd say:

“Use Zillow as one piece of the puzzle.”

Don't Price Your Home From One Number on a Website

This is where sellers can get into trouble.

Suppose the Zestimate says $350,000.

The actual comparable sales and current competition suggest the home should be marketed closer to $315,000.

The seller insists on $350,000 because:

“That's what Zillow says.”

The house hits the market.

Buyers compare it with everything else available.

Showings are slow.

No offers come in.

Eventually, the price is reduced.

Meanwhile, the home has lost some of that valuable new-listing excitement.

An automated estimate shouldn't override what the actual market is telling us.

The Opposite Can Happen Too

Zillow isn't always too high.

It can also be too low.

Maybe your home has improvements that aren't fully reflected in the available data.

Maybe you've added valuable features.

Maybe your property is significantly better than nearby homes the algorithm is comparing it with.

If the Zestimate says $275,000 but strong market evidence supports $300,000, I'm certainly not going to recommend giving away $25,000 simply because a website produced a lower number.

We follow the evidence.

Why I Use Multiple Sources

When I'm helping determine a potential listing price, I don't want to rely on one automated number.

I want to look at the entire picture.

Recent sold properties.

Current competition.

Pending sales when useful information is available.

Property condition.

Updates.

Location.

Square footage.

Basement finish.

Lot.

Garage.

Features.

Buyer demand.

Current market conditions.

And yes, automated valuations can be another data point.

The more good information we have, the better conversation we can have about pricing.

Zillow Is a Tool—Not the Market

I use technology extensively in my real estate business.

Technology gives us access to incredible amounts of information that buyers and sellers didn't have years ago.

But technology works best when it's combined with local knowledge and human judgment.

An algorithm doesn't walk through your house.

It doesn't smell the basement.

It doesn't notice the beautiful view from the kitchen window.

It doesn't see how your home compares with the one that just hit the market yesterday.

And it isn't standing at the kitchen counter listening to buyers react during a showing.

Final Thoughts

Zillow can be a great place to start researching real estate.

But don't make one of the largest financial decisions of your life based entirely on an automated estimate.

If you're thinking about selling, get a professional opinion based on your actual home and current local market.

Look at the comps.

Look at the competition.

Look at the condition.

Look at the features.

Then develop a pricing strategy.

Myth Monday Takeaway: A Zestimate is an estimate—not a guarantee, not an appraisal, and not automatically your home's selling price.

Zillow knows the data. The market determines the value.