Zestimate or Zestimiss? Is Zillow Damaging your Home Value?

If you’ve been thinking of selling your home, chances are high that you’ve checked out services like Zillow and Redfin to get a sense of how much money you could make through  sale. Here, we break down what you need to know about online estimate tools and how much trust you can place into those numbers.

 

How accurate are Zillow and Redfin?

Both Zillow and Redfin provide reports on how accurate their pricing estimators are. According to Zillow, the company’s Zestimate has a 1.9% margin of error for on-market homes nationwide. Redfin says its margin of error sits at 2.68% for on-market homes. The room for error grows for off-market homes, with Zillow reporting a 6.9% error rate and Redfin noting a 6.77% error rateThe tools typically look at a number of data points, including how many beds/baths in your home, square footage, market trends in your zip code, and recent or past sale prices of your home based on public records.

As with any online tool, sellers should always do their own research by looking at comparables in the neighborhood and take the Zillow and Redfin numbers with a grain of salt. A listing price, after all, is just the starting point and interested buyers will make their own offers that may fall below or above the initial asking price.

 

Can I lose money by relying on features like Zillow’s Zestimate?

The Zestimate may provide a general data point, but keep in mind that the tool doesn’t know much about the interior of your home, local nuances, and any physical attributes nearby like train tracks or flight paths which can significantly affect the value of your home.

In 2017, a group of homeowners unsuccessfully filed a class-action lawsuit against Zillow, alleging that the Zestimate tool was misleading buyers with lower price estimates on homes than what they were listed at, making it difficult for the owners to sell. The case was ultimately dismissed by a federal judge, who ruled that the Zestimate was a “starting off” point for prospective buyers and were not likely to be considered official appraisals.

 

I saw that you can get all-cash offers on your home through Zillow and Redfin. How does that work, and should I sell my home that way?

Selling through a service like Zillow and Redfin may seem convenient, but it carries its own risks too. Up until Nov. 2, Zillow was engaging in its own buying and selling business, where the company quickly purchased and sold homes through a process known as iBuying, which makes an instant offer on homes based on algorithms that determine a cash offer based on market prices. But after losing more than $420 million across three months from buying and selling homes at a loss, Zillow decided to shut down its home buying business and laid off a quarter of its staff to stave off the losses. 

Other companies that use the iBuying method include RedfinNow, Opendoor, and Offerpad. The iBuyers — the i stands for instant — typically make offers sight unseen and the entire transaction happens online with the goal of making a profit by reselling the home quickly after purchase at a higher price. Companies who engage in iBuying aren’t “flipping” in the traditional sense, given that they are not looking for fixer-uppers to renovate and resell for a profit, but are instead targeting a large volume of homes in good condition to sell rapidly.

If selling to an iBuyer, the seller also pays a fee to the buyer, which is typically around 5–9%. Any repairs the iBuyer has to make to ensure the home is move-in ready also gets deducted from the cash offer.

The all-cash offers, while enticing, also are based entirely on these services algorithms, meaning a seller has less opportunity to find a prospective buyer who falls in love with their home (and could be willing to pay more than the iBuyer’s all-cash offer).

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