Previously, the Zestimate for Rascoff’s home was $1.75 million the day after it sold. Currently, the Zestimate reads $1.5 million (pictured above).
The Truth About Zestimates
Zillow CEO Sold his Home for Significantly Less than Zestimate
According to an article by inman.com, Zillow CEO Spencer Rascoff, sold his Seattle home for much less than his companies (Z)estimated price. On February 29th 2016, his home sold for $1.05 million, a significant 40 percent less than the $1.75 million Zestimate described on the property profile the following day. After that, the gap between the sales price and Zestimate has only decreased slightly. Zillow is upfront about the possible discrepancies between Zestimates. However, not all consumers recognize that Zestimates are intended to serve as a starting point, rather than a final determination of property value.
Zillow’s Chief Analytics Officer Stan Humphries stated that the subject properties placement on a heavily traveled street and irregularly shaped triangle lot played a part in the overestimation of the home’s value. He also acknowledged that discrepancies, of course, can go both ways as human errors are a possibility as well.
It is interesting to note that this property was first listed in July 2015 at $1.295 million, with a Zestimate of $1.388 million (7.3 percent higher). The property was taken off, and put back on the market multiple times before it sold in February 2016 for $1.050 million, with a Zestimate of $1.750 (40 percent higher).
On March 1st (day after sale), the Zestimate was $1.75 million. On May 5th, the home’s Zestimate dropped to $1.61 million. Its current Zestimate, almost two years after the date of sale, is $1.5 million. There is not an accurate correlation between the the Zestimates and the gap between sales price. Zillow claims that the Zestimate’s national median error rate is 7.9 percent which means that half of them are withim the 7.9 percent of a home’s sale price and the other half are off by over 7.9 percent of a home's sale price.
Zillow’s Senior Economist Skylar Olsen made an interesting assessment in that Rascoff’s home embodies “the classic luxury homes problem”. This means that Zestimates are unable to take non-quantifiable factors such as lighting, design, or layout into account; these factors tend to have much more of an impact on the values of luxury homes as opposed to other types of properties. Savvy real estate agents are capable of integrating these factors into an accurate list price, unlike the Zestimate algorithm which is not designed for that level of specificity.
Zillow states that understanding how Zestimates are calculated in addition to its strengths and weaknesses is important for agents and consumers in order to utilize it as a starting point. It is a great tool to get the discussion going but it should not be the be-all end-all when it comes to determining property values.