Zestimates, Restimates, and Testimates: Are Online Home Value Estimates Accurate?

The big three: Zillow, Redfin and Trulia, all have proprietary algorithms that automatically generate estimates of your home's value, but are they accurate at all? No, not really. Why? Because computers can't do what humans can: look, feel, and form opinions.

The true market value of a home is what people are actually willing to pay for it. That's the buyer's opinion. When we as human real estate agents perform an estimate, we calculate an approximate amount your home would sell for, based on what other, similar properties have recently sold for, plus a lot of other factors that computers just can't see, and if they could, they wouldn't know if those factors were good or bad. It's from this estimate that we recommend a listing price for your home.

This number isn't arbitrary and it can't be calculated by a program. It's based on experience, market knowledge and performing a Comparative Market Analysis (CMA or "Comps"). CMAs sound simple, but they are so much more than finding similar homes in the neighborhood and averaging the prices they sold for. To be considered a comparable property, a property ideally matches your house in location, size, number of beds and baths, layout, year built (usually a 5 year range), condition, and upgrades and finishes.

Let's get back to those algorithms at the big three.

Zillow's Zestimate is their computer's estimated market value of a home. It is calculated using Zillow's secret formula using public and user-submitted data.

Trulia states: "Our engineers and data scientists developed a proprietary algorithm, based on a thorough analysis of market data, which calculates Estimates automatically and updates them daily. Our model spots trends that affect sale prices based on a home’s location and nearby homes. For example, some characteristics, such as square footage or the number of bathrooms, are given more or less weight depending on a home’s location..." Trulia tries to give you comparable sales, but this is where the algorithm really fails to stand up. See our example below and you'll know what we're talking about.

Redfin likes to brag. "According to an independent study of on-market homes, the Redfin Estimate is the most accurate among leading automated home-value tools. We provide the most accurate value of a home for sale—more than twice as likely to be within 3% of the home's selling price as other top online home-value estimators."

Zillow's Zestimate accuracy varies wildly. The median error rate for on-markety homes nationwide is 1.9%, meaning that there is a 50% chance that the house will sell within 2% of the actual sales price and a 50% chance that it will be above or below that 2% swing... For off-market homes, the median error rate nationwide is 7.5%.

At least all of these websites have a disclaimer that sounds something like this: "This is not a formal appraisal or substitute for the in-person expertise of a real estate agent or professional appraiser."

Well, that's true. Let's do a quick case study, shall we?

Example home:

This real house is in Cheviot Hills/California Country Club Estates is in escrow. It has 3 beds 4 baths, 2,800 square feet, and the lot is one quarter of an acre. It is a single story home, has a pool, 2 car garage, and was built in 1959. The most recent tax assessment is $793K and it last sold in 1986 for $380K.

The Zestimate is $3,367,000. The range is 2.96M to 3.87M that's a difference of $910,000.

The Redfin Estimate is $3,054,847. The range is $2.99M to $3.30M honing in to a difference of $310,000.

The Trulia estimate is also $3,367,000 (no surprise as Zillow purchased Trulia in 2014). The list of properties Trulia compares to our example property is all over the place, from Beverly Hills to Studio City. Even the most casual observer in the Los Angeles real estate market knows that you cannot compare a home in Studio City to one in Beverly Hills. That's just crazy talk.

None of the algorithms know anything more about the house or the neighborhood than what it grabs from public records and user input. They don't know if the home has been updated or whether it's a time-capsule from 1968 with shag carpet and an avocado-green refrigerator. They don't know if it has been re-wired with smart technology or if the electrical outlets barely work. They don't know what the house smells like. They don't know if the sun shines through the patio doors in the morning in such a way that gives breakfast a whole new meaning. They don't know that the neighborhood is full of caring people who walk their dogs at 8AM and regularly check in on the elderly people next door to make sure they're okay. They estimate the prep and repair costs at $6,000. That's it.

In this case, the computers got close! The buyer agreed to pay $3,225,000 for the property ($142,000 lower than Zillow/Trulia, $170,153 higher than Redfin). Lucky guess? No. The designers of the algorithm knew what they were doing when they wrote it. Zillow may claim that their estimate is a "starting point", but we aren't swayed. There's nothing like the human brain for forming opinions, even (close to) unbiased ones. And opinions are what the real estate market is based on.

Congratulations to the new owners of our example home! If you need a cup of sugar or the recipe for a good olive oil cake, give our digital media expert a ring...she's just around the corner.