Are you a real estate investor looking for a quick way to estimate real estate values and rental prices? The Zillow Zestimate is one way to do that. But is it the best one?
Among all the real estate platforms available online, Zillow is one of the most popular among real estate investors and professionals. However, other equally helpful platforms are also easily accessible. In this blog, we will explain how the Zillow Zestimate works and show you a better platform to use for your real estate investment needs.
Table of Contents
- What Is Zestimate?
- How Does Zillow Zestimate Work?
- How Accurate Is Zillow Zestimate?
- The Best Alternative to Zillow Zestimate
If you’ve ever gone house hunting, you are likely to have visited the popular real estate website Zillow. Along with its massive database of property listings is an algorithm-powered tool that calculates the worth of houses around the US. However, it takes more than that to establish the value of a house.
We will explore what Zillow Zestimate is and how it can help you as a real estate investor. We will also explore another option–a better alternative.
What Is Zestimate?
Zestimate is Zillow’s unique home value estimator or assessment tool, which can provide an approximation of the value of most investment properties in the United States. It gathers data from the MLS, and its accuracy depends on the amount of publicly available data. Basically, it relies on user-submitted data for property estimations.
Some residences, for example, could have an unclear number of bedrooms, limiting Zillow’s home value on a particular property.
The Zillow Zestimate meaning is pretty straightforward. Number one, it assists house sellers in determining the worth of their homes and coming up with a reasonable sale price. Number two, it gives buyers an idea of whether the property they want to buy is a good deal.
However, before we proceed any further, the discussion on the Zestimate home value renders another major question for investors:
What Is Zillow?
We cannot continue talking about the Zestimate without touching on the platform where it’s hosted. Zillow is one of the biggest real estate marketplaces in the US. It helps property owners and agents sell their homes and provides a diverse range of goods and services to both home buyers and sellers. If you’re new to real estate investing, the platform is a good starting point for getting your feet wet and learning how to market homes.
Zillow began as a media corporation that largely depended on advertising money. Today, Zillow matches prospective buyers and sellers with local realtors and mortgage lenders. It offers consumer-focused information for buyers, renters, and sellers. Agents may market themselves on Zillow, reaching thousands of prospective clients.
Zillow is a huge property marketplace in the United States, with over 40 million monthly visitors. It offers its consumers end-to-end solutions for selling, buying, renting, or financing real estate properties. Listing your property on Zillow for sale is a terrific way to reach more buyers.
How Does Zestimate Work?
To calculate a Zestimate for my home – or any residential real estate property for that matter, Zillow utilizes a complex neural network-based algorithm. It integrates data, tax assessment records, and direct inputs from hundreds of multiple listing agencies. Zillow has recently updated the Zestimate algorithm to include new improvements.
Neural networks are AI-powered systems that mimic the operation of the human brain. They can efficiently chart massive amounts of real estate data by connecting inputs and exploiting the links generated to produce or anticipate an output. The neural network model of the algorithm links house features, locality, real estate market trends, and listing prices.
However, Zillow does not physically come to inspect your home. The website can’t determine if you’ve made any renovations to the property. It also has no idea if your neighbor’s house is in bad shape or what shape your house is in right now.
This is unfortunate since all of these factors contribute to your home’s true market worth. All it has is publicly available information submitted by users who may or may not have an intimate knowledge of home appraisal. It is why Zillow has a higher median error rate compared to other platforms.
How Accurate Is Zillow Zestimate?
Many users place their trust in the Zestimate on Zillow. However, Zestimates could be significantly more accurate.
Zillow claims that its algorithm, which estimates the worth of over 100 million houses by assessing dozens of factors, is not to blame. A representative stated that the company is still confident in the capabilities of its Zestimate, noting the system’s typical mistake rate of 1.9% and 6.9% for on market and off market homes, respectively.
At the time of writing, the Zillow website states that its median error rate is 2.4% for properties listed on the market and 7.49% for off market properties. That is somewhat subjective, as other sources report different numbers. Some say the values are 3.2% and 6.9%, respectively. Others say they’re 1.9% and 7.5%. The numbers vary depending on the source and time.
Regardless, its proprietary formula is not exactly a hundred percent dependable.
Understanding the Zestimate Accuracy
Let’s take, for instance, on market properties. Given the 2.4% median error rate, this means that half of the listed properties nationwide are within 2.4% of the selling price, while the other half isn’t.
Now, 2.4% may not seem that big of a deal to a lot of properties, but to some, that’s already a big margin. That’s even worse for off market properties with a 7.49% median error rate.
To keep the math simple, let’s say a property costs $1,000,000. A 7.49% rate will mean a range between $749,000 and $1,074,900. For rental property investors, this property valuation difference of $325,900 can be what distinguishes a positive cash flow property with a good return on investment from a negative cash flow investment with poor ROI.
And that’s just the nationwide median. What if it were in states where the median error rate is even higher?
To be fair, Zillow never promises to be completely accurate. If all of the properties close to one another are similar, a Zillow Zestimate accuracy will be around 10% higher because there aren’t enough distinctive differences to throw it off.
In older communities with a large share of modified and updated properties, the estimates will be far from close.
For now, Zillow cannot tell how a buyer would feel or think immediately after they visit a property. It cannot tell you what the interiors are like, if it is well-built, or what materials were used for construction.
When real estate brokers and appraisers know the community and have personally inspected the home, they can use a different estimator to evaluate the property.
It’s critical to remember that Zestimate’s estimations are as precise as the source data. It means that the accuracy of Zillow’s algorithm will depend heavily on the quality of information it gets.
Zillow Zestimate’s Blunders
In 2016, the co-founder of Zillow, Spencer Rascoff, sold his house 40% below its Zestimate home value.
Then in the following year, a woman filed a complaint against Zillow, saying the company’s Zestimate tool continually devalued her property, which prevented her from selling it.
Zillow’s defense was that its estimates shouldn’t be seen as appraisals since they only provide market value. The woman then argued that Zillow should be licensed to make assessments before presenting real estate estimates and get the homeowner’s approval before putting them online.
When Zillow began acquiring houses over market rates that were largely dependent on the Zestimate algorithm, it discovered that the numbers did not hold up.
Nine out of 10 residences that Zillow purchased were resold at a lower list price than when the business bought them. If all of those houses sold at the asking price on Zillow, the firm would have lost $6.3 million.
Therefore, to answer the question “How accurate is Zestimate?” is that if in your housing market there is little information from the multiple sources Zillow uses to get data, you’re likely to encounter a severely incorrect number.
The Best Alternative to Zillow Zestimate
You have just discovered exactly what the Zillow Zestimate value is and how it works, including its pitfalls, challenges, and accuracy. So instead of using Zestimate and the Zillow property values map, we recommend going with the best alternative method of determining a property’s market value: Mashvisor.
What Is Mashvisor?
Like Zillow, Mashvisor is a data analytics tool designed to make real estate investing easier. It assists real estate investors in acquiring suitable investment properties.
It accomplishes this in two ways: First, it helps them find the most profitable markets best suited for their investment strategy. Second, it uses up-to-date real estate data based on market behavior and real estate comps to project their potential revenue on a property.
Mashvisor debuted in 2014 and quickly became popular because it was the only comprehensive resource accessible to property investors at the time. It was one of the platforms to provide data about investment properties to the public, thus leveling the playing field. All property investors, whether skilled or inexperienced, could now get access to data with the help Mashvisor.
Mashvisor allows you to look for investment homes in any city you choose in the United States. It also provides property listings from multiple reliable listing agencies. It makes the data it gives more accurate than Zillow Zestimate home values. Mashvisor also includes in-depth information on how to invest in real estate.
Why Should You Use Mashvisor Over Zillow Zestimate?
Apart from the incredible benefits and features you will soon discover, here are two major reasons why you should consider Mashvisor over Zillow Zestimates.
Increasing Rental Income
It is impossible to accurately compute the best rent price for your homes without the appropriate market data. Mashvisor gathers all the critical data elements needed to establish the best and most accurate prices for your investment properties.
Furthermore, you could see how much you could earn on an investment property. Mashvisor computes rent for all types of rental strategies, while the Rent Zestimate focuses on long term rentals only. Because not everybody wants a traditional rental property, the Mashvsisor website gives you information about short term rental markets, too. The platform has an Airbnb calculator available to short term rental property owners and hosts for computing reasonable yet competitive nightly rates.
Understanding Local Markets
Understanding local markets is vital if you want to know the best ways to price your investment properties and whether you should buy in a specific location or not.
Mashvisor offers investors and real estate professionals a wealth of market information. You may navigate across neighborhoods using its map and select the homes to see all of the important statistics.
You can then narrow your search to best suit your needs, preferences, or investment strategy.
Mashvisor Tools and How They Benefit Real Estate Investors
Below are the key features and benefits of Mashvisor that show you why it is the best alternative to Zillow Zestimate:
1. Market Finder
Mashvisor’s Market Finder lets you search for the best real estate markets that meet your goals and needs as an investor. It enables you to take a look at a location and see it from a bird’s eye view, allowing you to easily compare which neighborhoods will give you the best return on your investment.
This tool makes comparing rental markets a lot easier as you can take a glance at what each market has to offer. Its Mashmeter shows you an overall rating for each market, depending on your chosen filters.
You can further customize your search by activating filters on the Market Finder so you are shown only those that match your preference. From there, the search for the right rental property only gets easier. Using Mashvisor’s Market Finder saves you plenty of time, as you can turn three months’ worth of research into a matter of minutes. That’s not something you can do with Zestimate.
Mashvisor’s Market Finder trumps Zillow’s Zestimate as it allows you to customize your search using different filters like rental revenue, occupancy rate, and cap rate to ensure you find the best deals in any market.
2. Heat Map
The website’s real estate heatmap is one of the most practical and effective tools you will encounter throughout your initial search when you use Mashvisor. It’s a blueprint of your chosen region, with blue dots indicating available properties.
Activating the heatmap feature lets you identify how a particular neighborhood is doing under specific criteria. You can easily sort out which areas are performing exceptionally well or dismally by using the following filters:
- Long Term Rental Cash on Cash Return
- Short Term Rental Cash on Cash Return
- Long Term Rental Income
- Short Term Rental Income
- Listing Price
- Short Term Rental Occupancy Rate
Once the heatmap feature is on, it will automatically color-code the map to show you how each neighborhood performs, given the filter you use. The color spectrum ranges from green (representing areas with the best numbers) and red (indicating areas with the lowest numbers).
To put it simply, go with the darker shades and stay away from the lighter colors (except when it comes to listing price). Comparing multiple properties using the heatmap makes searching for the right investment home much easier and quicker.
3. Map Search Filters
While filters are used for Mashvisor’s real estate heatmap, sometimes investors would rather just proceed with their search without turning on the heatmap feature. Using filters on the map search, investment properties may be sorted by:
- Cash on cash return
- Capitalization rate
- Budget
- Number of bedrooms and bathrooms
- Rental income
- Year of construction
- Square footage
- Property type
- Property status
- Neighborhood
You could also filter your search to only display foreclosures and pending listings. This tool also lets you narrow your search to locate the best home for your specific needs without sifting through thousands of listings. This is much more options than those provided by the Zestimate.
4. Faster Search Process
The platform’s artificial intelligence allows it to substantially reduce the time required to examine an area. Instead of taking hours or even days, you can cut the procedure to as little as 15 minutes.
Time is an important aspect when searching for an investment property. If it takes too much time to find a property that suits you, it might already be too late. Mashvisor recognizes speed as crucial for investors like you in finding the best property.
5. Accurate Results
We have discussed previously that Zillow home values are not a hundred percent accurate. You do not want this when thousands or even millions of dollars are at stake. It is another area where Mashvisor proves to be the best alternative to Zillow Zestimate.
Because Mashvisor regularly updates its data, you have greater peace of mind when you run a neighborhood or investment property analysis at any given time. You can be confident in the integrity of the results you receive from Mashvisor because they are obtained from certified sites with high-quality data such as Realtor.com, RedFin, the MLS, and Airbnb (for short term rental data).
The portal also assists customers in making educated selections by offering area statistics like the occupancy rate of vacation rentals, the price of the property, and the return on investment.
6. Instant Alerts
You may register online to get search notifications, which will email you the most recent listings that meet your criteria. You will save more time this way instead of searching for homes yourself, and it only takes a click of a button.
7. Custom Information
When you request specific statistics on the Mashvisor platform, you can specify the sort of investment you’re interested in and receive data tailored to that exact purpose.
In other words, you may choose between individual and institutional investment alternatives. Then based on the instant alert benefit already mentioned above, you can set an email alert that will let you know when the property you want is available.
8. In-Depth Analytics
Once you’ve selected a property, you’ll have access to the most useful aspects of the Mashvisor experience: its massive database and real estate investment tools.
The website has an extensive real estate market database covering nearly every market in the US. This database gives in-depth data about real estate markets and the listings found in them.
This feature offers a few analytics categories that provide essential overall property value data for you as a real estate investor. This makes Mashvisor estimates much more accurate and comprehensive than the Zestimate.
9. Dynamic Pricing
One of Mashvisor’s latest tools that a lot of short term rental investors and owners will find really useful is the Dynamic Pricing tool.
Generally, the success of vacation rental properties hinges on two major things: occupancy rates and nightly rates. And while the occupancy rate is a significant factor in a property’s monthly rental income, the nightly rates have a direct effect on the occupancy rate.
It simply means that setting the right and reasonable nightly rates is one of the most crucial aspects of vacation rental management.
Mashvisor’s Dynamic Pricing tool lets you set nightly rates that make your investment property competitive in the market you’re in. Competitive prices tend to bring in more inquiries and bookings. It uses intelligent AI that taps into Mashvisor’s database and utilizes rental comps to recommend the most reasonable rates in your location.
In brief, this is something that is altogether absent from the capabilities of the Zestimate as it focuses exclusively on long term rentals.
Get access to Mashvisor’s Market Finder, Dynamic Pricing, and other tools to get you on your way to a thriving real estate investing career. Get started on your 7-day free trial today.
Conclusion
Zillow Zestimate is a good starting point for beginner investors. Using the platform will help a newbie investor learn about different real estate markets. However, if you’re a serious investor looking for the most profitable income properties, you might want to consider other options, like Mashvisor.
As an investor based in the US, it’s best to use Mashvisor over Zillow Zestimate. All the information presented earlier should prove why this is a good choice. Instead of using Zillow Zestimate, Mashvisor can help you discover how to find a profitable rental property using its high-quality data and investment tools.
The first thing you should do is choose a real estate market. A quick search on Mashvisor’s blog will show you the best places to buy rental property.
Next, perform a quick neighborhood analysis. All you have to do is browse for the city in which you wish to invest, and Mashvisor will show you a map of several areas with investment homes for sale.
After that, find an investment property. Mashvisor will help you in this area with its Market Finder and Property Finder tools. With these tools, you can efficiently perform property searches based on your specific preferences.
Finally, perform investment property analysis and comparative market analysis. It ensures that the property you buy can provide a good return on investment and a steady positive cash flow.
To start using the best alternative to the Zestimate and the Rent Zestimate in the US housing market, sign up for 7-day free trial of Mashvisor today.