‘Zestimates’ vs. Fair Market Value

By Brad Litz
Real Estate Broker, Appraiser & Investor
Meridian-Kessler Resident

The website Zillow.com makes its way into my life quite a bit these days, both good and bad, so I thought this forum may be the best place to satisfy curiosity and address the ever so controversial ‘zestimate.’ I love to use the Zillow app on my phone as I think their search function is the easiest out of the many apps available, but the ‘zestimates’ are often times inaccurate. Typically, it either scares somebody into thinking their house is not worth what they paid or it overestimates the value and gives a homeowner a false confidence that they have more equity than is actually there.

I just wanted to clarify what a ‘Zestimate’ is, how it is derived and whether or not it is a useful tool. The following is taken directly from the Zillow.com site:

The Zestimate® (pronounced ZEST-ti-met, rhymes with estimate) home valuation is Zillow’s estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home’s value. The Zestimate is calculated from public and user submitted data; your real estate agent or appraiser physically inspects the home and takes special features, location, and market conditions into account. We encourage buyers, sellers, and homeowners to supplement Zillow’s information by doing other research such as:

  • Getting a comparative market analysis (CMA) from a real estate agent
  • Getting an appraisal from a professional appraiser
  • Visiting the house (whenever possible)

I promise that I did not add the last sentence or bullet points, as I know that I like to drive home the point that a professional should be consulted when possible. A couple of things that stick out to me are the phrases ‘proprietary formula’ and ‘starting point,’ but really it is derived using a mass appraisal technique. A mass appraisal takes into account the values of a large area (be it a legal description, neighborhood or zip code), derives a common value indicator, such as price per square foot, and applies it to the homes in that area. Obviously, our neighborhood is very diverse in its home and lot sizes, so accuracy would be almost impossible, thus I don’t believe it to be a useful tool for finding the value of a home.

However, one of my favorite uses of the app is its easy to access information that is accumulated from public sites. Most of the information on your home, such as the year built, square footage and lot size are easy to find though public databases, but Zillow does an excellent job of gathering it up and putting it in one, easy to navigate website (even if a home is not for sale, this information is easily attained). In conclusion, I think that Zillow is a useful tool for professionals and anyone curious about real estate, not for ‘zestimating’ your value, but for its easy to navigate search function and database of public information.