# Are Zillow's Zestimates worth anything

## How Much Can I Trust Zillow's “Zestimate” Of The Value Of My Home?

I know how Zillow's tool was developed. It's in the public domain. Zillow's tool is designed to minimize the percentage error in its estimate. This has sparked lawsuits from those who feel harmed by the estimate. The tool is an unbiased estimator in logarithmic space and not in price space. In the price space, the best estimator would minimize the quadratic loss.

Unless you have a math mind, it means that mistakes in evaluating your home are multiplicative rather than additive. Real estate valuations are additive when carried out by commercial appraisers. The short version of this is that Zillow is likely to cost \$ 10,000 less on a \$ 100,000 house than it is \$ 100,000 on a \$ 1,000,000 house. A commercial appraiser would likely have a \$ 100,000 discount on a \$ 100,000 home compared to a \$ 10,000 discount on a \$ 1,000,000 home.

The second problem is that Zillow cannot see the condition of your property. If your home were hit by a meteor, the Zillow price wouldn't change until the neighborhood cut prices due to the disaster. It cannot know the actual state of affairs.

Zillow does the worst with two types of houses. The first are houses that were built before 1920, as these houses are generally not consistent with the surroundings and do not resemble anything else. The second is high quality homes. This is due to the multiplicative scaling of errors in connection with a lack of comparability.

This triggered the suit. A commercial appraiser can say the home is worth \$ 4,000,000 and Zillow is worth \$ 3,600,000 or \$ 4,400,000. The difference is that the appraiser needs to know what area the house is in and what structures are actually comparable, so the data is limited to appropriately linked properties. In addition, the appraiser physically observes the property and the neighborhood, is aware of local financing issues and has extensive experience in the local market. Zillow cannot approach this level of modeling difference.

People are upset because if Zillow is low no one will make an offer comparable to the appraiser's written estimate, but if it is high the sale can still be done if the buyer is willing to cash out on their own Add bag.

There may also be an endogeneity problem in your regression model, but that's unclear. It is also unclear whether this would have an impact.

Depending on what you're paying for the appraisal and how important it is for you to know the value, I'd say the Zillow appraisal is likely reasonable. It is important to understand that the method used averages the "sample space" so on average it is a great tool for what it is trying to do but is not a substitute for commercial evaluation.

Another potential source of information is your local real estate appraiser if you live in a property tax jurisdiction. In most states, appraisers are required to rate real estate in much the same way as commercial appraisers. If you can reverse engineer the assessor's method, you will get a pretty good idea of ​​the value of your property.

EDIT as per the request in the comments. Information on the lawsuit and its dismissal can be found at: https://www.washingtonpost.com/realestate/zillow-faces-lawsuit-over-zestimate-tool-that-calculate-a-houses-worth/2017/05/ 09 / b22d0318-3410-11e7-b4ee-434b6d506b37_story.html? Utm_term = .fc60d061f894

https://www.reuters.com/article/us-zillow-group-lawsuit/zillow-wins-dismissal-of-zestimate-lawsuit-in-us-idUSKCN1B32RN

I can no longer find enough data to reference the specific mechanism Zillow is using. You can find some loose validation information at: https://www.zillow.com/zestimate/

### Joe

I think this would be a very good answer if you added some quotes - for example a link to details / reporting / etc about the lawsuit, where the specs of the estimate are, etc to make your answer very solid.