Last week, several major media outlets (including the Los Angeles Times and the Christian Science Monitor) jumped on the “news” that –- according to Zillow –- the White House has lost nearly one-quarter of its value during the past three years and is now worth $251,617,000.
Nobody bothered to question how Zillow came up with that number. Frankly, nobody cares how Zillow came up with that number. The info made for a very slick sound bite and, not surprisingly, lots of media types bit. In today’s hyper-speed, media-soaked society, we’re all about the bottom line –- please, spare me the details and just get to the point, already (I’m busy, don’t you know?). So Zillow reported its new number, and nobody questioned it — although a few folks did at least point out the absurdity in quantifying the numerical worth of the White House.
That’s the main problem I have with Zillow and the folks who swear by its increasingly popular “Zestimate.” Although even Zillow acknowledges that the Zestimate is “a starting point in determining a home’s value,” that isn’t how it’s being used by most folks. It’s become gospel –- the commonly accepted equivalent of an appraisal, even though, in many cases, a property’s Zestimate doesn’t even accurately approximate fair market value.

It’s All About the Data

Take Central Oregon, for example. My hometown and the area surrounding it aren’t particularly Zillow-friendly. The tri-county region (Deschutes, Crook and Jefferson counties) is primarily rural, which makes life difficult when it comes to calculating the Zestimate.
Here’s one reason our Zestimates are often off base: Much of Zillow’s information is pulled from county records. So, as Zillow states, “The more data we have, the more accurate the Zestimate.”
To its credit, Zillow actually rates its own accuracy –- assigning each locale from one to four stars and then detailing in chart form how close to the sales price their Zestimates prove to be. Below is one of several charts available; it shows how accurate the Zestimate is in a number of major metropolitan areas. And it’s not bad in some locales, but not so great in others. Actually, even in Philadelphia, the city where Zillow considers itself the most accurate, the Zestimate was within 5 percent of the home’s sales price only 33 percent of the time.
Zillow's Zestimate accuracy chart for US metro areas
By contrast, consider Zillow’s stated accuracy at estimating home values in Central Oregon (see chart below): Deschutes County rates only two stars (by their definition, a “fair estimate,)” Crook County rates one star (“Tax assessor’s value, or unable to compute Zestimate accuracy”) and Jefferson County doesn’t rate at all.

Zillow's Zestimate accuracy chart for Oregon counties

A Zestimates Primer

So exactly how does Zillow come up with its Zestimate? I have no idea –- that’s proprietary information that, I assume, only the tech gods at Zillow are privy to. The website does, however, state the following:
We compute this figure by taking zillions of data points — much of this data is public — and entering them into a formula.…When our statisticians developed the model to determine home values, they explored how homes in certain areas were similar (i.e., number of bedrooms and baths, and a myriad of other details) and then looked at the relationships between actual sale prices and those home details. These relationships form a pattern, and they used that pattern to develop a model to estimate a market value for a home.
“Remember, the Zestimate is a starting point and does not consider all the market intricacies that can determine the actual price a house will sell for, such as entertaining offers, negotiating, closing costs, timing, etc.”
In many urban communities (even Central Oregon’s Bend, Redmond and Sisters), the Zestimate does hit fairly close to the mark fairly often. After all, if you’re evaluating the typical three-bedroom home in a city subdivision, the chances are good that several recent comparable sales are available for Zillow to use as its guide.
On the other hand, when you’re looking at homes outside those parameters, the same doesn’t necessarily hold true. For example, I pulled up the listing for a home on acreage in Sisters that sold recently and examined Zillow’s analysis of it, which helped explain the problem with accepting a Zestimate at face value  — i.e.,without also looking at how Zillow’s computer arrived at that figure:
The 2,645-square-foot home with guest house and four-car garage, on 4.8 acres outside the Sisters city limits, sold in October for $380,000.

  • The Zestimate for this property (as of Dec. 3, 2010 –- the Zestimate fluctuates) was $710,500.
  • The 10 comparable sales listed ranged in price from $122,500 to $1,800,000.
  • The “comparable properties” included a 1,692-square-foot townhouse on a small city lot and a 5,658-square-foot custom home with guest quarters and eight-car garage on 20 acres.
  • One of the comparable sales closed on Dec. 11, 2009.

Obviously, this doesn’t begin to approximate the information that your local appraiser would incorporate if he or she were to assess the value of that property. Actually, if your appraiser were to turn in numbers like those above, he or she would be fired. And if your Realtor handed you comparisons like those and expected you to factor them into your buying or selling decision, he or she should be fired.
And so…
If you want to fully understand how Zillow values its properties (and if you’re relying on the dang thing to make a significant financial decision, you really should), there’s plenty of information available on the Zillow website to explain their process, although you’ll have to do some digging to find it. On the home page, to the right of all those brightly colored tabs is a little wanna-be tab that says “More.” Click on that, then click on “Home Buyers, “Home Sellers” or “Homeowners.” Then click on “Learn about Zestimates.” Or just click here to get to the “What is a Zestimate?” page.
My recommendation to you: By all means, take advantage of the wealth of property-related information available to you via Zillow. It can be extremely helpful in better understanding your real estate market. But, please, don’t rely on the Zestimate unless you’re convinced that it’s reliable. Study the comparable properties they’ve used to come up with that number — and make sure those properties are, in fact, comparable. Or better yet, ask your real estate agent to provide you with a list of comparable sales (he or she should be doing that, anyway) and discuss with you how those properties relate to the home you’re in the market to buy or sell.
(P.S. For the one or two of you out there who are curious about how Zillow assessed the value of the White House, the website doesn’t list any comparable sales (how could they?). Zillow determined its value, according to a 2010 blog post, “based on the home’s physical attributes (132 rooms! 55,000 square feet!), historical value and housing performance in the local Washington, DC market.”

About the Author:
Lisa Broadwater, GRI, CDPE is a Central Oregon-based real estate professional who specializes in listing and selling homes, especially in Sisters, Tumalo, Redmond and Bend.