Bouncing Back

In Part 1 of this entry, I introduced the website Zillow.com and discussed the significant functionality provided at the website for free and without registration. Next, I'd like to explain how the Zestimator (market price estimation tool) algorithm works. The Zestimator algorithm uses property tax records developed by the local tax assessor as its primary information source. While this information source offers broad-based and consistent home valuations, there are also weaknesses found in this method. For example, tax assessor records often don't consider improvements made on older properties. Also, by lumping all home prices into one algorithm, you're bound to skew some of the pricing outputs and generate inaccuracies. Fortunately, the nice people at Zillow.com have taken these potential inaccuracies into account, and they have provided tools for you to tailor your Zestimate to incorporate your personal knowledge about the property and neighborhood.



When I researched the Zestimate for my own home, I made several changes to my Zestimate in order to more accurately calculate my home's likely market value. First, I noted that my house had a 700 sq ft improvement added on after it was initially built which was not reflected in the tax assessors database. Square footage is the single biggest factor in pricing your home relative to others in the neighborhood and adding 700 sq ft to my Zestimate made a big change in its projected value.

Second, my property has nice horse facilities which are not included in the tax assessors records and which have a specific resale value in the marketplace. The Zestimator update tools allows you to add specific home improvements into your estimate. This is especially useful when an improvement is not specifically reflected in the calculation of square footage inside the home, such as swimming pools, outdoor entertainment facilities, sports courts, etc.

The third factor I elected to update provided the most interesting and useful feedback to me. The Zestimator uses comparable home sales which are closest in distance to your property in order to estimate the "comps" part of your Zestimate. In most cases, this makes sense as equally sized homes within a neighborhood are often more similar in value than equally sized homes found in other neighborhoods. However, in my case, I have a two-acre property whereas most of my neighbors have 3/4 to 1 acre properties. This extra acre has significant value in a suburban setting (such as my area) and was not being given enough credit in my baseline Zestimate. By using the update tools for your Zestimate, you can choose your own "comps" in lieu of the "comps" chosen for you by the Zestimator. The software will show you twenty to thirty "comps" within a several mile radius of your property, and you can pick ten properties which best match the characteristics of your property.

In my case, when selecting my own "comps," I choose ten properties with a minimum of 1.5 acres of land and which were close to my home's square footage. It was very eye-opening to see how the dollars /sq ft average price went way up when additional acreage was included in my home's Zestimate. You see, realtors view all property from the perspective of dollars /sq ft -- for example, a $500,000 home with 2500 square feet has a value of $200 per sq ft. When realtors prepare "comps" for you to consider in setting a price for your home, they often go no further than this calculation. In my case, using this metric without considering the additional value of the land would have seriously undervalued my property!

In summary, when using the Zestimator to estimate the market value of a home, you should definitely consider whether accurate underlying factors have been used in calculating your estimate. These factors may include previous additions of square footage that are not on the tax assessor's records, other property improvements that may exist on the property and whether the Zestimator-generated "comps" are good comparables for your property.

In the third and final part of this entry (Part 3), I'll review how Zillow.com can help you as a home buyer, and I'll also discuss a few of the limitations of the Zillow.com model. Until then, don't hesitate to visit Zillow.com at the link provided above to check it out for yourself!