Where does Zillow’s “Zestimate” Come From?

When you’re thinking about buying a home or selling a home, one of the first questions that comes up is: how much is the property really worth? Zillow’s “Zestimate” often pops up as a quick answer to that question. But where does this Zestimate come from? How reliable is it? And how should you use it when making decisions about your home? As with most things in Richmond real estate, the accuracy of their valuation is highly dependent on a number of factors that may or may not be available online.

What Is the Zestimate?

The Zestimate is Zillow’s estimate of a home’s market value. It’s designed to give buyers and sellers a starting point for understanding what a property might be worth.

The Zestimate is not an official appraisal, it provides a quick snapshot of home valuation based on available information. I don’t think anyone knows their exact algorithm but it combines sales data, assessment data, asking prices (yes, they use asking prices) and economic data. Their estimates can also be manipulated by adding or subtracting upgrades.

How Zillow Calculates the Zestimate

Zillow’s Zestimate comes from a combination of public and user-submitted data. Here’s a breakdown of the main sources and factors involved:

Public Property Records

These include tax assessments, property deeds, and previous sale prices. Public records provide a foundation for understanding a home’s history and official valuation.

Home Facts and Features

Details like square footage, number of bedrooms and bathrooms, lot size, and year built are factored in. More detailed home information helps improve the accuracy of the estimate.

Location Data

The Zestimate algorithm considers the neighborhood, proximity to schools, parks, and other amenities. Location heavily influences home values.

Market Trends

Zillow tracks recent sales in the area, price changes, and market activity to adjust the Zestimate based on current conditions.

User Updates

Homeowners can update their home facts on Zillow, which can help refine the Zestimate.

Zillow uses a proprietary machine learning model that weighs all these data points to generate the Zestimate. The model continuously updates as new data comes in, aiming to reflect the most current market conditions.

How Accurate Is the Zestimate?

Zillow openly shares that the Zestimate is an estimate, not a formal appraisal. Its accuracy varies depending on the location and the amount of data available. If you click through a bit, you can find their accuracy charts — which lets you know that they are +/- 10% on a good day. According to Zillow, the median error rate for on-market homes is about 1.9%, while for off-market homes it can be closer to 7.5%.

If you are planning to buy a home or sell a home, the Zestimate should be one of several tools you use. It’s a helpful starting point, but you should also consider:

• Getting a professional home appraisal

• Comparing recent sales of similar homes in the neighborhood

• Consulting with a local real estate agent

  
  

Why the Zestimate Matters for Buyers and Sellers

For buyers, the Zestimate can help narrow down price ranges when searching for a home. It gives a quick sense of whether a listing is priced fairly compared to similar homes nearby.

For sellers, the Zestimate offers insight into how your home might be valued by potential buyers. It can guide your asking price and help you understand market trends.

Keep in mind that the Zestimate does not account for unique home features or recent renovations unless updated by the homeowner. For example, a brand-new kitchen or a finished basement might not be reflected immediately in the Zestimate.

Zillow home valuation chart and neighborhood map on laptop

Tips for Using the Zestimate Effectively

• Use the Zestimate as a starting point, not the final word. It helps you get a ballpark figure but should be combined with other research.

  
  

• Check the “Zestimate range” on Zillow listings. This range shows the possible variation in the estimate and helps you understand the uncertainty.

  
  

• Look at recent sales data in the area to see if the Zestimate aligns with actual sale prices.

  
  

• Update your home facts on Zillow if you own the property. This can improve the accuracy of your home valuation.

  
  

• When you’re ready to buy a home or sell a home, there is no substitute for an experienced agent from the area. They can provide a more precise valuation based on current demand and property condition.

  
  

What Zestimate Does Not Include

Understanding what the Zestimate leaves out is just as important as knowing what it includes. The algorithm does not consider:

• Interior condition or upgrades (unless reported)

• Unique architectural features

• Market factors like buyer demand or seller motivation

• Local economic changes that might affect property values

  
  

Because of these limitations, the Zestimate can sometimes be off by thousands of dollars.

Scott's Final Thoughts on Zillow’s Zestimate

The bottom line is that Zillow and all of the others all arrive a different values. I ay that clients should use these estimates in their analysis, but not as their analysis.