As an ever-popular real estate website in the U.S., homeowners and potential buyers have long looked to the Zestimate tool when exploring what a home may be worth. Though it can sometimes provide a helpful starting place, there are also pitfalls to the algorithm-based system, which doesn’t account for system errors and the human element of valuing a home. For example, how is Zillow to know if the owners put thousands of dollars into a brand new, state-of-the-art kitchen? These flaws were recently on display in Washington, as Seattle Times reported that a home in Mason County was over-valued by a staggering 700-percent in its Zestimate.

The article introduces us to Sue and Roy Carlson, who bought paid $225,000 for a Kitsap Peninsula home last year. An internet search outlining the home’s value varies based on the website one looks at, as Redfin says its worth $318,000, while Realtor.com places it at $268,000, and the county assessor values it at $283,000. The Zillow page, however, shows “the home is now worth $1.8 million.”

There is nothing remarkable about the property, which is in need of what owner Sue Carlson estimates to be $100,000 in updates. Wondering why the home was valued so high, and worried about how it may impact her desire to sell the property, Carlson says she “went on a mission to figure out how her home could be valued at 700 percent above what she paid for it.” Her experience has become part of a long tale of the pitfalls of home pricing algorithms, that once again demonstrates that the Zestimate must be taken with a grain of salt.

Zillow is currently working to improve their system, as the Times says the company recently announced that a competition to write a new algorithm was pared down to 100 semifinalists, whose input has already prompted them to make slight changes over the past few months. In  Carson’s case, the outlandish home value was caused by what Zillow says is a rare error: their third-party service “recorded the actual sales price of the home as $1.77 million,” which caused the Zestimate to skyrocket. As the Times notes, “the company doesn’t have any systems in place to alert employees if its computers suddenly change a home’s value drastically. But Zillow says its working to change that.”

Examples such as Carson’s work to demonstrate how truly imperative it is to incorporate the expertise of a real estate agent when valuing your home. I’ve been following Zestimate trends for some time now, and couple of years ago, I shared a video blog from our neighbors at Cascade Sotheby’s International Realty in Portland, which highlighted just how large of a financial difference even a slight percentage difference in value can have on a home. At the time, Zillow estimated that it was within 5% of the variable price 43% of the time in Portland (which it deems within the range of the highest grade of accuracy it can assign to an area). But with a median price of say, $400,000, that equates to a $20,000 difference – a costly amount you can’t afford to miss when buying or selling a home.  

For more on Carson’s home value Zestimate debacle, read the full Seattle Times article here.

THE PROBLEM WITH ZILLOW IN PORTLAND (AND SEATTLE)

Zillow uses an algorithm to determine property values.  This Zestimate uses public information and user data to figure out how much a home is worth.  The problem is, these Zestimates are not very accurate.  Zestimates are usually at least 5% off, which is a lot of money. To learn more about the true value of your home, watch this short video:


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