How Accurate is a Zestimate? Understanding Zillow's Home Valuation Model

A Zillow Zestimate is an estimated market value for a home, calculated by a sophisticated automated valuation model (AVM) that analyzes millions of data points. However, its accuracy is highly dependent on the availability of recent, comparable sales data in your local market. During periods of low market activity, such as the COVID-19 pandemic, Zestimates can become less reliable due to a significant drop in new listings and sales, which are critical inputs for the model.

How Does Zillow Calculate a Zestimate?

Zillow's algorithm generates a Zestimate for approximately 97.5 million homes by processing vast amounts of data. This data includes public records like county and tax assessor files, direct feeds from hundreds of multiple listing services (MLSs) and brokerages, and specific home facts provided by homeowners. An AVM is a computer-driven pricing model that uses statistical modeling to determine a home's likely selling price. As this underlying data is updated, the Zestimate automatically adjusts, sometimes daily, to reflect changes in the market.

The model doesn't just look at one type of information. It synthesizes:

• Physical Attributes: Square footage, lot size, number of bedrooms and bathrooms, and year built.
• Historical Information: Prior sale prices and tax assessments.
• On-Market Data: If the home is currently listed for sale, its list price and time on the market are factors.
• Location Data: The model analyzes comparable sales not just within a specific ZIP code, but also in similar neighborhoods and a broader geographical area to identify market trends.

Why Can Zestimates Be Inaccurate During a Shifting Market?

The accuracy of any AVM, including the Zestimate, relies heavily on a steady stream of fresh market data. When transaction volume declines, the model has fewer data points to use for comparisons. Based on our experience assessment, significant economic or social events can directly impact this data flow. For example, as of May 3, 2020, new for-sale listings were down 39% compared to the previous year due to pandemic-related concerns. This sharp reduction made it more challenging for the algorithm to pinpoint accurate values because it had fewer current listings and recent sales to analyze.

Furthermore, in unique or non-uniform neighborhoods where homes vary significantly, the Zestimate may struggle to find truly comparable properties, potentially leading to a wider margin of error. It does not include a physical inspection of the home, so it cannot account for the condition of the property, recent upgrades, or any deferred maintenance.

What Other Factors Influence the Zestimate Calculation?

To compensate for sparse local data, the Zestimate model expands its scope. It looks at trends in similar neighborhoods and larger geographical areas. This allows the algorithm to extrapolate pricing trends even if there have only been a few sales in the broader region. However, this approach can sometimes generalize too much, missing hyper-local market nuances that a real estate agent would recognize. The model also incorporates home facts input by owners, but these are not independently verified.

Practical Advice for Using a Zestimate

While a useful starting point, a Zestimate should not be your sole source for determining a home's value. For the most accurate assessment, especially in a volatile market, consider the following steps:

• Consult a Local Real Estate Agent: A licensed agent can provide a comparative market analysis (CMA), which is a more detailed report based on their firsthand knowledge of the neighborhood and recent sales of the most similar properties.
• Order a Professional Appraisal: For the most definitive valuation, such as when securing a mortgage, a formal appraisal by a licensed appraiser is required. This involves an in-person inspection of the property.
• View the Zestimate as a Tool, Not a Gospel: Use it to track general market trends and get a ballpark figure. Understand that it is an estimate, not a guaranteed sale price.

As local housing markets adapt to new economic conditions, Zestimates and their accompanying forecasts will continue to change. For detailed questions about the methodology, always refer to Zillow's official Zestimate FAQ page.