Zillow just updated its Zestimates of house values. If you follow Zillow’s estimate of your house’s value, you might want to check it out now and see if it changed.
Zillow made two changes. First, they improved how the Zestimate is calculated and, second, they changed how they report the accuracy/inaccuracy of their Zestimates.
More Accurate For-Sale Zestimates
Every year or two, Zillow will make a major improvement in how they calculate their Zestimates. According to Zillow, their newest system can now “see” the photographs of houses in listings and can “distinguish between high and low-end finishes” and can “incorporate the value of features like updated bathroom fixtures, fireplaces, and remodeled kitchens” into their Zestimates. This applies to houses that are for sale which means Zillow has photos and all that extra information you see when houses are actively on the market for sale. The improvements incorporate ideas from the Zillow Prize® data science competition winners.
On-Market Split From Off-Market
Zillow also changed how they report the accuracy of their Zestimates. Previously, Zillow only gave the median errors for all Zestimates combined in an area. Three years ago the median error nationally was 6.7%. Last year it was 4.6%. Now it’s 7.7% for homes that are NOT listed for sale but the median error is only 1.9% for homes that are listed for sale and Zillow has photos and all the extra information that’s available when a house is listed for sale.
Using their updated median errors, I updated my Zillow Zestimate Accuracy Calculator.
The increase in the accuracy of Zestimates of for-sale houses is because of the improvements Zillow made to how they make Zestimates but also because they now calculate the accuracy of for-sale Zestimates separately from their less accurate, off-market Zestimates.
The good news for home buyers is Zillow says the median error on its new Zestimates of For-Sale/On-Market/Active-Listings is only 1.9%. That means the median difference between the final Zestimate value of a house and its actual sales price is now 1.9%. If you’re browsing Zillow for homes for sale, their Zestimates can give you very good ballpark ideas of the values of the houses.
(Of course, when you look at a house for sale online, you’re probably not looking at the final Zestimate so the difference between the Zestimates you see online at any time and the final sales price will be higher than the differences used to calculate the median error but, nevertheless, a median error of only 1.9% is great.)
It’s All Good
The good news for homeowners who are just curious about the ballpark value of their house, or any house on Zillow that is not listed for sale, is the reported accuracy of Zestimates is now more accurate. You can see in the table above that the median error of off-market houses that aren’t listed for sale is a lot higher than we thought in 2018.
Whether you’re a buyer looking at a house for sale or a curious homeowner, you should always scroll down and look at Zillow’s “Estimated Sale Range” or the “Zestimate Range” for a house. The price range shows you how accurate/inaccurate the single-dollar Zestimate is. In particular, if you’re planning to put your house on the market soon and you’re trying to figure out its value, focus on the Zestimate Range, not the single-dollar Zestimate value.
They’re Not Appraisals
Zillow is honest. They’re clear that Zestimates are not appraisals and, “We encourage buyers, sellers and homeowners to supplement the Zestimate with other research such as visiting the home, getting a professional appraisal of the home, or requesting a comparative market analysis (CMA) from a real estate agent.”
Nevertheless, when Zestimates are low, home sellers can get quite upset with Zillow. Those sellers complain that every potential buyer who checks out their house for sale on Zillow sees that low Zestimate right next to the seller’s asking price. Hopefully, with this new update, that will happen less often and when it does happen the differences will be smaller.
Another problem that will hopefully be reduced with the update is when Zestimates are too high. High Zestimates can be more expensive for sellers than low Zestimates. If a high Zestimate leads you to price your house way too high, it will take longer to sell and sellers lose negotiating leverage fast the longer the house is on the market.
Congratulations to Zillow on improving the accuracy of their Zestimates of for-sale homes. Home buyers and owners should just remember that Zestimates are not appraisals and that Zestimates of houses that are not listed for sale are a lot less accurate than Zestimates of houses that are listed for sale.
For more information, check out this post from last year, How Accurate Are Zillow Estimates?. You can also find out here how to convert the Zestimate median percentage error into Zestimate median dollar error for your area.
“Zillow” and “Zestimate” are registered trademarks of Zillow, Inc.
# # #
An earlier version of the piece was published on Forbes.com.