How accurate are Zestimates?
Spot on, says Zillow. The company is now so confident in its ability to estimate the value of a home without ever setting foot inside, it will make a cash offer on select houses.
The company announced the initiative this month — 15 years after first posting its Zestimates, the oft-watched home-value estimates that have long been the source of much speculation about their accuracy by homeowners who have watched the “value” of their home fluctuate on various websites.
Zillow’s chief economist Stan Humphries said the new initiative, which is part of its Zillow Offers program, is a reflection of its confidence in the accuracy of those Zestimates, which have been a fixture on the company’s website since the beginning.
“This really was the key animating vision in the early day; how to create more transparency in the real estate market,” Humphries said. ”Zestimates were our first product and our cornerstone product.”
Zillow is among a growing number of national “iBuyers” that use technology to make offers that aim to streamline the buying and selling process by eliminating the need to ready a house for sale and market it in traditional ways. Though the valuation methodology varies among iBuyers, the strategy is the same: disrupt the traditional brokerage model in the same way Amazon has upended the retail world.
After acquiring the property, usually for cash and on the seller’s timeline, Zillow and other iBuyers do whatever repairs are needed to resell them. Because some iBuyers are not licensed brokers they use local agents to resell the house.
Zillow now publishes Zestimates for more than 97 million homes across the country. It uses statistical and machine learning models that can examine hundreds of data points for each individual home. It also incorporates the specific characteristics including square footage, location or the number of bathrooms that can impact the value of the house.
Using artificial intelligence and hi-tech software including computer vision, it’s now using photos and other imagery to help value a property.
“What we’re doing with machine learning,” Humphries said. “Humans wouldn’t have the time or be able to do it because of the scale.”
The company said the accuracy of the Zestimate depends on the location of the home and the availability of data in that area. The more data available, the more accurate the Zestimate value will be. So until it has more data for more areas, the company is making cash offers to owners of select houses in two dozen metros around the country, including Minneapolis.
Critics of the model said iBuyers rob home sellers of the opportunity to maximize their profit by not exposing the property to the broadest possible buyer pool. Humphries disputes that notion.
“The evidence that we’re most accurate is that we’re the only ones willing to back that estimate with an initial cash offer,” said Humphries.
Matt Baker, president at Edina, Minn.-based Coldwell Banker Realty, said that while there’s a place for Zillow and other iBuyers in the industry, he doesn’t believe it’s a threat to the traditional brokerage model
“(The) iBuyers are the ultimate expression of convenience,” he said. “But we can replicate that.”