Updated: Sep 27
On at least one occasion I've had an experienced agent mock me for giving any credence to Zillow Zestimates surrounding a home. In this article, I wanted to set the record straight about why I feel it's a good idea for me to point buyers to area Zestimates prior to seeing a home where the surrounding Zestimates were substantially lower than the list price of the home. I'll also be providing some other information in the process such as regarding the Zestimate value prior to listing vs the actual value of the home.
How can Zillow Zestimates be Beneficial for Buyers? Value of the Home Itself
Especially when numerous elements enhancing Zillow Zestimate accuracy are present, a Zestimate can give a buyer an idea about if a home is priced below value, at value, or above value. To do that, it's best to look at the Zestimate prior to listing using the Zestimate history rather than just looking at the current Zestimate. If a home is listed for an amount significantly below the prior Zestimate, does it have many repair needs? That's likely. If it's listed above the Zestimate prior to listing, have there been many repairs/updates since it was last sold? That's likely as well, and if not, it could be overpriced, but that's not necessarily the case if there are factors that throw off the Zestimate substantially, like the value of optimal navigable deep water waterfront in a neighborhood that otherwise doesn't have much of it.
While the margin of error is higher on the individual sale, they're even more beneficial when you're looking at the neighborhood & comparable previous sales in the neighborhood or similar for a potential property and considering the value of properties in the area. It's not unusual for appraisers to adjust for appreciation if looking back at sales more than 6 months ago. Zestimates can be better than actual sales prices of homes in the past year to easily & quickly make that adjustment when considering comparable sales, especially if looking back to a sale in the distant past when there's been significant appreciation or depreciation since then.
How can Zillow Zestimates be Beneficial for Buyers? Value of the Neighborhood
If you see a property listed far below the neighborhood properties' Zestimates, even if the home may need some work, it's possible that it will be worth the repairs/improvements (though it could even be a "tear down, so that's not always the case). When I bought my first home, this scenario was precisely the case. I bought a small home in a location of larger homes of higher value despite the work needed at the home because of the value I could get after repairs & the fact that I couldn't do much about the neighborhood, but I could certainly improve the condition of the house. It was the single best financial investment I've ever made. I used a conventional renovation loan and the difference between the sales price & the cost of repairs wrapped into my mortgage vs the appraised value of the home after repairs primarily by contractors was greater than my annual income at the time. I had the seller cover most of my closing costs, had a down payment assistance program cover the majority of my down payment, and I even tested out successfully for a month while a bachelor having rooms rented out to tenants while I was there covering my mortgage. Since then, the value has grown to almost double the cost of what I paid for it and the cost of the financed repairs combined.
Conversely, if you see a property listed far above the neighborhood Zestimates, keep in mind that regression has a negative impact on value. I recall the disappointment of a seller who sold a home with me for far above what any property nearby had sold for, where the buyer was willing to pay the asking price, but the appraiser knew better and even after a value dispute where the appraiser came up from their initial value, it sold for less than what you would think a property like that would sell for. If the same home had been built in a neighborhood just a mile and a half way, it would have had no problem appraising, but the initial cost would have also been higher due to a higher cost of the land. Likewise, if you're considering an addition on your home, it's much more cost-effective if your total square footage will not be the most of any home around you or close to it.
How can Zillow Zestimates be Beneficial for Sellers?
Zillow Zestimates are most beneficial for sellers when there are numerous factors increasing their accuracy such as in the list below, especially those most important factors. With many accuracy enhancing elements in place especially, it can give an owner a ballpark idea of what a home is worth, which can be beneficial for something like PMI removal after a property has achieved >20% equity after <20% was put down initially.
Zestimates can also be helpful when a seller is considering selling prior to getting an assessment from a real estate agent. That said, if a seller lists a home for sale for the Zestimate without having a professional opinion on value, they could be leaving 10's of thousands of dollars on the table if not hundreds of thousands of dollars. In addition, they can be listing a property far above the actual value, with a long market time having a negative impact on eventual sales price, all other factors the same. In addition, for sale by owner homes have a significantly lower median sales price than listings by agents. Not getting a professional opinion on value leading to a long time on the market is 1 of many reasons why.
Zillow Zestimate accuracy is much stronger for on-market properties (especially when listed by an agent that provided a comparative market analysis prior to listing & that is a standard agent rather than a limited service agent) than off-market properties, especially when the on-market property has typical (no more, no less) marketing for that price range home.
On Market Statistics:
Image courtesy Zillow Last Updated April 27, 2023
Image courtesy Zillow Last Updated April 27, 2023
Where Zestimates have a hard time:
Anything that isn’t listed as a metric on Zillow. The public remarks on a property likely have no impact on a Zestimate. For Zillow, it’s all about the metrics, because Zillow is algorithm based, not based on an individual’s manual opinion. Zillow isn’t smart enough to sift through the public remarks well if at all.
Any improvements (i.e. upgrades, replacements, & repairs) performed since the last sale.
It's been a long time since the last sale.
Any significant deterioration since the last sale.
Waterfront (especially high up navigable with deep water & a dock) vs nonwaterfront
Neighborhood homes have high levels of variance in the quality of constructions & volume of upgrades
Detached + attached garage configurations. (i.e. a 4-car garage property in a community of 0-1 car garages may have a lower Zestimate than it should, especially if it last sold a long time ago)
Fences or the absence of fencing being the same throughout the neighborhood
Non-conforming color schemes
High amounts of unfinished or finished space that isn’t counted in the home’s square footage
Flood zones vs non-flood zones in the same vicinity
Busy streets vs quiet streets
Where Zestimate Accuracy is Highest
The last sale was recent (the more recent the better) and the sales price at that time was at or below the list price.
Lots & lot features are similar throughout the neighborhood (i.e. +/- 20% acreage), with Zillow not being great about increasing value for corner lots or waterfront and seemingly unable to tell how long a driveaway is if present at all.
When the property was last sold, there were at least a few dozen pictures including of interior & exterior
When the property was last sold, it was sold by a typical agency rather than for sale by the owner (sometimes this information isn’t clear to the public, since some agents do limited service agreements with sellers to put a home on MLS, with that information often only being visible to agents)
When the property was last sold, it was not a distressed sale (i.e. as is, foreclosure, short sale, etc.; sometimes this information isn’t clear to the public while typically real estate agents with access to the MLS of an area can see that information)
The nearby recent sales are close in age
The nearby recent sales close in proximity are in the same neighborhood, especially the same HOA
There is not a high level of disparity between monthly fees in the neighborhood (or the lack thereof) & the surrounding area
There aren't any AE flood zones in the area that would require flood insurance for mortgages.
There aren't any communities in the area that wouldn't qualify for VA, FHA, or conventional loans (unless if having to do with loan price caps).
Zestimate Adjusts After On Market Within 1 Week
While not an immediate adjustment after hitting the market, within a week after hitting the market, the Zestimate typically adjusts to a number closer to the list price instead of the off-market Zestimate value. You can see the history to see if an adjustment was made in the home value section, such as here where it shows Zestimates over time:
Image courtesy Zillow
If new construction is involved, the Zestimate history prior to the first sale, if present, can be way off the value of the current home during that time since it didn't exist.