Zillow’s estimated market value tool “Zestimate” has been questioned by both real estate investors and agents for its accuracy.
Zillow is an online property search website that makes its money by collecting fees from its users. They created Zestimate with the purpose of aiding investors in determining a property’s value.
Though this seems useful, the accuracy of its data has been put into question. It has come to the attention of users that Zestimate does not consider serious aspects that change the value of a home. If it doesn’t account for these factors, is it still an accurate tool?
In this article, we will review Zestimate to determine how reliable this tool is. We will consider all of the issues put into question by agents and investors to determine if they should continue using it for investment decisions. Lastly, we will look at an alternative to this tool that can provide more reliable information to its users.
What Is Zillow?
Before one can say how accurate Zestimate is, we should look at the source of its creation. Zillow is a website that allows anyone to search for available property listings for free. This means that both homebuyers and sellers could benefit from using Zillow’s services.
Zillow is also a platform for flipping houses. In fact, this is where it makes money. They charge a sales fee, along with interest for home loans and fees for leads. Sometimes it is unclear to the basic user as to how Zillow makes a profit, but essentially it is by collecting fees.
Specifically for buyers, Zillow lets users buy available properties right through the website. If you need an agent, it will provide you with one who specifically represents Zillow. They take a fee from any property sold by using the website.
For sellers, homeowners can list their properties right on the website. But if the home is sold through a buyer who accessed the Zillow platform, the company then takes a fee for that purchase.
Zillow also allows users to discover rental properties if they are looking to travel or find a place to stay. Not only can users look through available rental listings, but they can also upload information like their credit score, a background check, or any additional verification items one would need for a rental property. This lets users speed up the process of finding a rental that works for them.
Renters using Zillow can even choose to pay online for their rental property for the duration of their stay rather than going through the owner directly or using checks. If this occurs, Zillow takes a fee of the rental total.
One of the last key features that Zillow offers is mortgages. For consumers, Zillow offers mortgages that come from other lenders they are partnered with. This is another way Zillow is able to make a profit.
Note that Zillow also offers some tools such as a mortgage rental calculator, an affordability calculator, and rent Zestimate: a home value estimator.
What Is Zestimate?
Though most people who know anything about real estate are aware of Zillow, they might not be as familiar with Zestimate.
Zestimate is a tool created by Zillow that is used to help estimate the value of a home. It works by using a proprietary formula created by statisticians that sort through the real estate data to calculate property value. This could be useful to investors who are looking for an income property.
Though Zestimate is a tool described to estimate the value of a home or property, it does not account for other specifics that go into determining a property’s value. Zillow claims that its purpose is just to be a starting point when determining the value of a property.
The only features Zestimate takes into consideration when determining home value are a property’s physical attributes and tax records. Occasionally the software will recognize other user-submitted data and use that in its estimate.
Though Zestimate may seem like it could be useful to investors, how reliable is it?
Is Zestimate Accurate?
Zestimate is Zillow’s version of a home value calculator. As real estate investing can be challenging, the company attempted to create this software to help investors judge the value of a potential investment property. If the calculator is inaccurate, though, then it is likely to lead to bad investment directions.
Zestimate Only Looks at Taxes and Physical Attributes
Investors and agents alike have complained that Zestimate’s data and the tool overall is simply not helpful for real estate investment strategies, as the data produced by the software is not reliable. One key feature that makes it questionable is the fact it does not consider the most important features that would determine the value of a home. Though the property takes into consideration taxes and physical aspects, it does not consider location, special features or amenities, and the condition of the property.
There Is a High Error Rate
If you are an investor using real estate investment tools, you must make sure you can count on the data you are given, or else your investment property will fail. Zestimate does not take into consideration some of the key aspects that give value to a home. How can you trust it?
In short, users really can’t. Zestimate reports the national error rate is around 4.6%. This would mean in terms of Zestimate, half of the listing prices seen on Zestimate have an error rate of 4.6% already, and the other half has an even higher error rate. If you are investing in real estate, then this data is far from accurate.
The goal of investing is to generate a passive income. If all of your data is off, it will throw off how much income you are expecting to make from the investment property. A 4.6% error rate might not seem like a lot, but that’s 4.6% more you will have to pay for your property. That could be thousands of dollars in the end, especially if your property is an apartment building or condominium complex.
They Rely on User Information
Aside from the large error rate, Zestimate relies on user information to create its estimated home value price. Though this seems like a great idea, if the information the user entered was inaccurate, then the Zestimate will be wrong.
Users can fix this information right on the original Zillow listing, but Zillow does not guarantee it will even change the Zestimate. This is because it takes a while for the changes to be available to the Zestimate software, and they even say that sometimes the changes are not taken into consideration at all.
This means users won’t know if the Zestimate estimate they are looking at for a property is accurate, and there is really no way of telling. This could cause serious problems for investors when making investment decisions such as budgets and remodels.
Zestimate Does Not Consider Upgrades & Remodels
When searching for an investment property, if you do not want to fix and flip a home, it is likely you are looking for a property that needs the least amount of repairs. A newly remodeled home will have a higher value than the same style home that has had no upgrades in 20 years. Zestimate does not take home remodels into consideration when determining their estimated home value.
For example, if you and your neighbor have the exact same features in your home, but you recently remodel and upgraded all of the bathrooms while your neighbor has not, Zestimate will still value both properties equally. This can make it tricky for investors to be aware that new changes have even been made to the property.
Overall, Zestimate has some key issues with their software that ultimately makes it difficult for real estate investors. How can someone determine if an income property for sale is worth investing in if all of the data is inaccurate?
What Is Mashvisor?
If you are an investor looking for reliable real estate data, consider using Mashvisor. We are a real estate website that helps investors find lucrative properties to turn into rentals. We have a wide variety of tools and services that are available to our users to help guide them through their investment decisions and strategies. All of Mashvisor’s data is from reliable sources such as Airbnb and the MLS. This data is put through our special algorithm to provide our users with predictive estimates and other useful information.
Mashvisor’s Property Value Tool
We offer many different tools and services that you may need within your investing career. Similar to Zestimate, we have a property value tool called Investment Property Calculator. But unlike Zestimate, our data is more reliable and will guide you towards profitable investment decisions.
Our investment property analysis tool helps you fine-tune your investment costs and create an idea of estimated returns. This is essential when trying to calculate your budget for your overall investment. You need to count on the data you are provided with because, in the end, it will be a crucial aspect whether you will make a profit or not. You can count on Mashvisor for accurate real estate data.
Our Investment Property Calculator tool provides investors with the predictive data:
- Mortgage Interest Rate
- Property Tax
- Maintenance Costs
- Cash on Cash Return
- Cap Rate
- Airbnb Rental Income
- Cash Flow
- Airbnb Occupancy Rate
Masvhisor wants to provide you with all of the metrics needed to make smart real estate decisions.
Found in every listing published on the Mashvisor platform is the Investment Property Calculator, which estimates the property’s cash flow and returns based on the rental strategy, rental income, expenses, and occupancy rate.
What Other Tools Does Mashvisor Offer?
Mashvisor offers many tools besides a home value calculator. Before you can even determine how profitable an investment property can be, you need to find a house. We offer investors a Property Finder tool that lets you search through available properties in any city across the U.S. Mashvisor lets our users filter through these listings so they are only viewing the ones that best fit their wants and needs. Below are some of the filters offered:
- Budget
- Location ( you can search multiple cities at once)
- Rental Strategy ( Airbnb or Traditional)
- Number of Bedrooms / Bathrooms
- Type of Property
This data is used to match you with your perfect investment property.
We also offer a great Real Estate Heatmap tool. This is perfect for investors looking to conduct a neighborhood analysis to locate a profitable investment location. Our map shows you the listings with the best prices, that will offer the highest Airbnb rental income and cash on cash return. Location is a crucial aspect of investing as it can completely alter how profitable investment can be.
Using Mashvisor’s Property Finder, you could search up to five different cities at the same time. This will help you find the property with the highest profit potential even when you are still considering different locations.
Should Real Estate Investors Use Zestimate?
Though this question is up to the investor themselves, Zillow’s home value estimator seems to have quite a few problems.
First, Zestimate recognizes taxes and physical attributes in its calculations but fails to consider many other factors such as location, type of property, and how recently the home has been remodeled. Mashvisor’s Investment Property Calculator, on the other hand, takes all of these factors into consideration to provide investors with the most accurate home value prediction.
Additionally, relying on users to input information creates a higher chance of mistakes, which throws off the data entirely. Mashvisor does not rely on user-generated information for our data. We use data from reliable sources such as Airbnb and the MLS to ensure that the information we are presenting to our users is accurate. We also present the medians rather than the averages to our users. This ensures no outliers will skew our metrics.
Mashvisor’s main focus is providing the most accurate real estate information to our users. We know investing in real estate can be difficult, so we offer all of our tools and services to help guide you through your investment decisions.
To Recap
Zestimate is a tool created by Zillow to predict home value. Unfortunately, it has raised questions within the real estate community as it is said to provide inaccurate data with a high error rate. Using this tool may create problems with calculating your investment property because the data will all be off once you actually attempt to purchase a property.
For these reasons, we recommend Mashvisor as an accurate alternative for your rental market analysis. Mashvisor only uses reliable data to ensure our users make the best investment decisions. To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.