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Falling in love with a Zestimate

Many sellers make the mistake of relying too much on a Zestimate, an estimate of value from Zillow.  They price their home according to the Zestimate if it comes in really high, but if it comes in low, then it’s obviously just a stupid computer glitch and is immediately dismissed.

The Zestimate pricing model is not limited to Zillow.  These Automated Valuation Models, or AVM’s, are available everywhere now including a lot of broker websites. They’re fun if just for entertainment value, but sellers need to understand that AVM’s were designed to provide quick and easy macro-level valuations for institutional investors who don’t have the time, the desire or the ability to do a detailed analysis. No one thinks that they’re as accurate as an actual comparative market analysis from a professional real estate agent or appraiser — not even the people who created them.

Zillow itself admits to a national median error rate of about 8 percent, which means that half the Zestimates are off by more than 8 percent.  For homes with Zestimates of, say, $1,000,000, only half those homes are going to sell inside a range of about $920,000 to $1,080,000. The other half is worth more or less than that range.  (On a $2,000,000 home, the 8% cushion on the low end and the high end translates into a $320,000 spread.  You may as well throw darts!)

Sellers should think about how they would feel if an agent comes to their house and says “Well, my advice would be to price it somewhere between $920,000 and $1,080,000, and I’m confident that we have a 50 percent chance of selling it within that range. Yay for me!”

Would a seller have a lot of confidence in that agent?  Then they shouldn’t fall in love with an AVM.