The Problem With Zestimates (and AVMs in General)

August 15, 2016

Flint Adam, Nolensville TN Real Estate Agent

by Flint Adam, Nolensville resident & Realtor®
Monday, August 15, 2016

Zillow caused quite a stir in the real estate industry a few years back when the online portal created a method of pricing homes called the “Zestimate.”

Until that point, determining home values had largely been relegated to real estate agents and appraisers, though Automated Valuation Models (or AVMs) had been around in some form or another for a while – usually used by institutional investors.

The public applauded this new Internet technology… real estate agents agonized over it. The effectiveness, though, of the Zestimate – and similar online pricing methodologies – was up for debate.

Industry experts noted that Zestimates were quite often faulty with their valuations – by a significant amount – and a review of Zillow’s own disclaimer reveals that the company’s highest median accuracy rate only comes within 6.1% across the U.S.

Whoa – that’s pretty significant! Consider a Nolensville (Williamson County) home priced at last month’s median sales price of $460,724. Zillow’s 6.1% median accuracy-rate means the Zestimate may price this home anywhere from $432,620 to $488,828. That’s a pretty significant swing and could significantly underprice or overprice a home.

Here’s a real-world example: I recently represented a family who purchased a home in Nolensville’s Catalina neighborhood. The home sold for $580,000 on July 27, 2016… which was market-accurate and reflected the home’s condition, features, and location.

However, a review of the home’s AVM pricing today on Zillow and Trulia showed remarkably different figures…


Zillow prices the home at $601,164 (3.65% overpriced)… only about two weeks after it sold at $580,000! But that’s not even the really bad valuation…

Screen Shot 2016-08-15 at 7.57.35 AM

Trulia came in with a price of just $528,000 (9.84% underpriced). Notice, too, that Zillow and Trulia show a big difference in square footage. Here’s the irony: Zillow and Trulia are two real estate portals owned by the same parent company – Zillow Group – and they can’t even agree on figures for the same house.

It may amuse you to read that when I tried using the valuation tool on for this address, it brought me to Antioch and displayed a neighborhood full of homes priced in the $150K-$215K range…

AVMs like Zillow, Trulia, etc. fail mainly because they use tax record data (which is quite often inaccurate), and proprietary computer algorithms that unfortunately have never seen your home in person. So, there is no way to see the present condition of your home, the additions/renovations you have made, or intangibles like who the builder was, the slope of your driveway, or backing up to a basketball court.

These factors matter to a buyer… they matter to the marketplace… and a computer algorithm isn’t going to get that.

If a seller takes Zillow’s pricing as the gospel, they leave themselves open to leaving money on the table or watching their home languish on the market, unable to receive an offer.

Buyers, meanwhile, could whiff on buying the home they really want because they’re undervaluing the true worth of a home.

How A Good Realtor® Can Help

A good Realtor® will share their list-to-price ratio with you. This is the difference in price between what they typically list a home at, and the price it sells for. In Nolensville, a Realtor’s® average should fall within 2% or less.

Sellers, that could be a 4.1% higher price your home actually sells for than you thought possible! Or, it could help you avoid a frustrating, lengthy stay on market due to overpricing.

So, What Do You Do About AVMs?

1.) Don’t ignore their influence: if you’re selling your home, it’s still wise to see what these different portals are valuing your house at because prospective buyers will likely be looking at them. If the figure is way off it may be a point with which your Realtor® will need to be extra vigilant in educating the other party on.

2.) Don’t consider them the gospel: even Zillow admits you should use their Zestimate only as a starting point, and for a more reliable price estimation you should have a Realtor® create a Comparative Market Analysis for you, or hire a professional appraiser.

Flint Adam and his family live in Nolensville’s Bent Creek community and he proudly focuses his real estate practice right here in town. Call him today at 615-500-6393 and discuss how he can help solve your real estate buying and selling needs.