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How to Explain Zestimate Home Valuations to Your Clients

Real estate agent showing couple a new apartment.

“How Much is My Home Worth?”

In years past, buyers and sellers had to consult a real estate agent for this information, who would base their home valuation off a long list of factors, including comparative analysis, market trends, and the home’s condition and placement within the neighborhood. With today’s technology, however, buyers and sellers can simply Google their address and receive a Zestimate home valuation instantly. While having this information at their fingertips is enticing for homeowners interested in refinancing, listing their home, or seeing how much a home is worth down the block, it is important to note that this is number is not foolproof.

How is the Zestimate Calculated?

To help real estate agents field questions from clients about Zestimate home values, Zillow put together a handy series of scripts for agents to use when the inevitable question of Zestimates comes up. Here’s Zillow’s example answer for “How is the Zestimate calculated?”

“I’m glad you asked! It’s important to understand that a Zestimate home value is neither random nor unchangeable. I also want to make sure you understand that the Zestimate is not an appraisal. The main ingredient in a Zestimate is data and it’s broken down into three categories:

  • A home’s physical attributes that Zillow gets from both public and user-submitted data
  • Tax assessments and other tax assessor information
  • Past sale records for the home itself and nearby or comparable homes

To calculate the Zestimate, Zillow’s data experts run that data through a series of computer processes—an algorithm. The data is continuously analyzed and compared with real home sale prices, so the Zestimate model will change and improve over time, and Zestimates will become more and more accurate.”

Beyond the script, you also need to understand these key points about Zestimates:

Zillow’s Estimated Market Value is a Starting Point and NOT an Appraisal

Zestimates are calculated using Zillow’s proprietary automated valuation models that consider public and user-submitted data. It is a starting point in determining a home’s value and is not an official appraisal.

The Zestimate is Only as Good as the Data Behind It

Several times per week, Zillow updates its collection of property values, which are based on both public data and user-submitted data. When the public data (which includes the date and price of the last sale) is inaccurate, it throws off the Zestimate. Since sales of nearby homes also affect a home’s Zestimate, a mistake in one home’s sales price record can affect the Zestimates of other homes in the area (Investopedia). While users can correct these mistakes, updating a property’s details doesn’t always result in a change, and even when it does, it could take months to reflect in the Zestimate.

For clients placing all their eggs in the Zestimate, you can cite the example of the home formerly owned by Zillow CEO Spencer Rascoff, which sold for 40 percent less than the Zestimate value of his home.

While the Zestimate is not an airtight number, it is a talking point to start a conversation and–most importantly–an opportunity for you to demonstrate your expertise about an area and market trends. Use it to your advantage!

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