Admit it, you’re a Zillow-holic, addicted to checking online home value estimates.
Every time you get near a computer keyboard you just gotta see the latest “Zestimate” of your own abode or some rooftop you’re thinking of buying. Just type in an address, tap return and see what Zillow’s algorithms say about the latest value of every house in the ‘hood.
David Howell has done this hundreds of times, but not because he’s lost control. The executive vice president at Alexandria-based real estate firm McEnearney Associates wanted to compare Zillow’s estimates against the actual sale price of residential real estates deals in Greater Washington.
His analysis isn’t encouraging. “Those predicted values are wildly inaccurate and inconsistent,” Howell writes in a company report made available to me before being published in McEnearney’s own newsletter, MarketWatch.
Howell compared the Zestimates of 500 existing home sales (no new properties) in the area that closed between March 24 and March 31. He found the online values were within 5 percent of the actual sale price — high or low — just half the time.
The 50 percent accuracy rate within 5 percent of sales price is right in line with Zillow’s own research, which shows Washington estimates as second best among 30 markets nationwide. In Denver the 5 percent rate was running at just under 57 percent as of Feb. 24, while some other metros ranged from around 25 percent to low 40 percent.
“It all comes down to the quality of the available data,” company spokesman Cory Hopkins told me in a call from the company’s Seattle headquarters. Some areas just have better public and real estate listing and sale information than others that can be blended into the super-secret algorithm, which he added “is constantly tinkered with.” He said the company “readily admits” it can’t match a local real estate professional on the streets of a particular market.
In Greater Washington, Zillow got within 10 percent of actual sale price 80 percent of the time and within 20 percent of the closing figure 93 percent of the time, according to Howell’s research. Zillow says it is 76.3 percent accurate within 10 percent and 91.3 percent within 20 percent in this market.
The metrowide median selling price through March was $389,900, up 4.7 percent from a year ago, according to real estate listing service MRIS’s RealEstate Business Intelligence report. So each five percent of a $400,000 deal is worth $20,000.
Geographically, Zillow was within 5 percent of actual sale price nearly 60 percent of the time in Northern Virginia; 43 percent of the time in suburban Maryland; and about 35 percent of the time inside the District, according to Howell. The online market estimate did better predicting the selling price of detached single-family houses than attached dwellings such as townhouses and duplexes or condos.
In a high-end housing market like metro Washington, Zillow came within 5 percent of closing on properties selling for more than $1 million just below 39 percent of time, compared with nearly 60 percent for houses in the $500,000 to $999,999 range and 47.3 percent of the time for houses selling below $500,000, based on Howell’s analysis.
This is fourth time Howell has done such an analysis since 2010, but the sample size of his previous efforts hovered around 200 transactions instead of 500 deals. “It was still about 50/50 within 5 percent,” he said.
Hopkins, the spokesman, and Zillow’s website point out that its estimate “is a starting point” in determining a home’s value and is not an official appraisal. On Thursday, Zillow (NASDAQ: Z) announced it is adding a new tool that forecasts the estimated change in a home’s value over the next 12 months in both dollars and percentages.
Howell said that not a week goes by when he or his colleagues don’t encounter some home seller or home buyer who is fixated on the Zillow estimate. He tipped his cap to Zillow for its marketing success. But he said McEnearney wants its agents better informed to help buyers and sellers break the Zestimate habit.
“If a consumer wants to base their valuation of home purchase or sale on what they find on the internet, we suggest they take out a coin and flip it,” he said. “Heads, the value is what the home is actually worth or within 5 percent high or low. Tails, the value could be 10 percent, 20 percent or more off target.”