Despite how much I actually like Zillow, Trulia, Redfin, etc…we’re going to talk about one of my BIGGEST pet peeves out there…and that is the almighty Zestimate and Automated Valuation Models. Enjoy! Add me on Snapchat/Instagram: GPStephan
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Just about every real estate website offers a service where computer calculations look at public record data, recently sold properties, recently listed properties, and then aggregates all of that data to then provide an estimated value of what they think that specific home is worth. It’s a fun concept, and theoretically, it should give you a fairly realistic number of what a specific home is worth. The problem, however…is that it doesn’t.
The problem is that a home’s value is extremely intricate – and public record data only makes up for a small portion of a homes value. Consider this, what Zillow and similar websites do to create their estimate is aggregate public record data of all nearby homes based on Zip Code and Street. They first compile a list of every single home’s LISTED square footage, bedrooms, bathrooms, and lot size. This creates their base from which to work from. From there, they look at recently sold properties within those areas to determine a base price per square foot. They then compare that data with the sale price of every single home and create a guideline of what price they THINK that specific home is worth based on that data. At a very basic level, it works…from a numbers standpoint, you look at how big the home is, how big the lot is, how many bedrooms and bathrooms it is…and you compare it with something similar to that which recently sold within that area. Or they use a combination of average price per square foot, and come up with an average value.
The Washington Post recently did some research, and determined that only HALF of Zillow’s estimates fell within a 5% range of value…that means more than HALF of estimates are off by more than 5% either OVER or UNDER. Zillow itself claims that 75% of homes sell within a 10% range, higher or lower, and 89% of homes sell within a 20% range…I’d just hate to be one of those homes in the remaining 11%.
The reality is that to come up with a value of a property, you really need to calculate it on a case by case basis. You really need to consider every single home on a case by case basis on its own to come up with a reasonable value. This is something that an algorithm isn’t able to do within a reasonable amount of accuracy.
So for anyone out there, it’s important not to rely on Zillow’s estimates. If anything, just ignore them or use them exclusively just for entertainment purposes only.
For business inquiries or paid one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at GrahamStephanBusiness@gmail.com
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can you do a video how you do comps in 30 mins?
4:47 DoEs iT nEeD a neW rOof
brb gunna go program. I think a mixture of image recognition, boolean analysis, trimming of outliers, would handle this
Build it..and become a billionaire
Good job on this one G!!
“Create an algorithm…..that will give Zillow an edge”.
Meaning:
Zillow will make that $1million back in two seconds USING MY ALGORITHM.
Nah.
I’ll pass.
“Use the Zestimate ….for entertainment” is like the people that buy lotto tix and play slot machines.
First, I am guessing Zillow and other real estate sites estimators are more complex then what was explained, but you do give a good general idea. I feel like the good thing to know when using an estimators is what is or is not included, which you did a good job explaining here. Personally, I think “what Real Estate Websites estimators are failing to take into account and why” is a better title and instead of saying why these suck, wouldn’t it be better to explain how to use them to your advantage and how to deal with them once their estimate it too low.
Side note, it would only suck to be part of the 10.3% where zillow was off by 20% or more when the estimators was 20% below the real value. It would be interesting to know how much of that 10% is too high or too low. I am guess most is too high, ei, distressed homes that are being sold “as is” are often going to sell for more then 20% of what Zillows estimators guesses, but that is because you are going to need to put is a far amount of that 20% into home improvement to get that home up to average for the area.
🤣
Don’t you think their algorithm accounts for outliers? Not saying this makes it accurate, but…..
Good for people selling the ugliest house in the neighborhood?
Great video. Can you make a video on how to asses or calculate a investment property?
I can only snap with my right hand.
Zillow is selling houses…?
If the Zestimate is so inaccurate and causes so many issues to the point where they get sued, then why do they keep it up? What’s the point? Not trying to be sarcastic or anything, I genuinely wanna know if they still get an overall benefit from it.
Graham I’m here for your background music 🎶 🎼 🎵😎
From what I hear, car faqs has a new venture under way called home faqs. This may drastically improve automated estimates, if they are successful and actually share these “faqs”
I can not able to understand korean subtitle pls make eng sub :=)
Just had mine appraised, Zillow was within a couple grand.
I heard they added Google Street View as a data source. So curb appeal does matter now. The competition has ended – some computer scientists team developed a better algorithm. They claim something like 5% of accuracy.
Omg Zillow is so far off my neighbors house is 250 grand more then the rest of the whole neighborhood it’s nuts and Zillow says we have a fireplace n we do not
What song is this ?
Now that we know the aspects of what goes into a more accurate estimate, i’d like a video showing How to accurately calculate an estimate! Graham Stephan video – 29 minutes (2 minutes for intro, 25 minutes to calculate estimate and 2 minutes to close)
this is the reason you need a certified appraiser for. period.
Had a good recent example myself. I was flipping a manufactured home with land, and Zillow was using all the recent normal homes in the area as comps. Probably part of the reason why I was able to double my investment on that one.
I’m right handed but can only snap well on my left hand.
@Graham Stephan I would really appreciate it if you could make another video explaining how to find out for what price the property that one is interested in sold before and for what price the other properties in the vicinity were sold. I mean, it’s not like the people that now live there are willingly going to disclose this information to you. And I doubt that any public records hold this kind of information, either – just an estimate of the property’s worth… So, as I see it, a crucial part of the necessary information in order to be able to make an aducated guess is missing…
It’s ESTIMATE!!! ESTIMATE !!!
You are absolutely correct! Realtors need to take time to truly evaluate each property, taking into consideration all the amenities as well as other features. Your statements regarding the differentials of homes in a particular neighborhood are the primary concern. Zillow does not consider the exterior and interior features for selling features. Zillow does not reflect the true worth or value. Over half of their guesstimates are off by a high percentage!
Are you left handed
Do a video on propstream! They have a free trial too
I’ve also seen mortgages taken into consideration. I know a couple who owned a million dollar home and took a 300k mortgage on it. That brought the estimate down to 300k.
And my home was listed as being sold for the amount that the mortgage was approved, which was higher than the price of the home because the mortgage included closing costs.
Ask Zillow for what they are willing to buy your home for. The true zestimate.
🙄
I would like to point out your multi million dollar clients might not care about Zillow, because they aren’t price sensitive to the same degree as the middle class. But the video does reveal a unsaid truth.
*NOTES*
How to figure out what a property is actually worth
Every website has a simulator where you type in some numbers, then it aggregates the numbers and spits out a result. This doesn’t matter
there’s so much that goes into this. People have careers built around this. A simulator won’t do.
When it comes to valuing a home, it’s extremely intricate. The public record data only accounts for a fraction of what that home is actually worth
*How places like Zillow work*
1. They aggregate a list of public record data from zip codes and nearby streets
2. They compile a list of every home listed, square size, no. of bathrooms, bedrooms. This is the bedrock of how the simulation builds to estimate.
3. Then they look at the homes recently sold in that area to come up with a base sold price per square foot
4. Then they compare the data of every other home sold in that same area to that same radius to come up with what they think that house is worth
5. Get Estimate. Woo woo. So fun.
The bad part of this is that it’s based on averages. So one bad home that burns down, that’ll tank the average in your area.
SOOOO. *What makes homes valuable to begin with besides the bedrooms, bathrooms, square feet?*
1. What Zillow won’t account for: *House conditions.*
i. Is there mold, is the kitchen 50 years old, the literal quality of it all is not accounted for
LAWSUITS
1. For the reasons above, Zillow will ding your house if you don’t account for all the details. This can hurt sellers and buyers
To really calculate a home take into account:
STATS
How big, lot size, bedrooms, bathrooms, is it permitted, is there a pool, 1 story or 2 story, is there a basement
REMODELS
Does it have hard wood floors, carpet, high ceilings, open floor plan, is there a small master bedroom, does the master bedroom have a small closet, is there traffic, is it dated, is it by a commercial building, is there lots of noise?
LAST SOLD-and when/how much it sold for at that time
Then you can look for the similar homes and what they sold for and if they’re actually similar
Do the references have granite counter tops, hard wood floors, need bathroom updates, etc?
Then what else is for sale?
It’ll take a professional who’s been doing this for 10 years 25 minutes to run together the numbers and get a realistic price for what a house is worth
DON’T USE ZILLOWS ESTIMATES EVER
Hire me and I’ll improve your algorithms.
5:05 crack den view 😂
True!👍👍
We were looking for a house in Berkeley, and the realtor told us the Zestimate was $775K. I had to work hard not to laugh in her face because houses in the area were going for over 20% over listed prices, and I knew that small, 900sqft 2bd 1 ba house was going to go for over $900K, which was above our budget. It seemed like such an amateur thing to tell a potential buyer.
okay great video content! im having same issues, and, i actually thought i was the only one HA! :] ]
…and so, your thoughts on the GSM ? because if this info was to get out, land value would contort overnight!
https://www.youtube.com/channel/UC-5dIHmtQzHIdNCs7-bEdCA
And 5% is really nothing if you like the location, Or, dont be in a hurt to sell of you want that extra 5%… duh people! lol
Lose the music
@Graham Stephan, did you leave that word flip mistake in there to get more comments on the videos? “Impeded the home of her sale.”
👍 Hack that algorithm Graham!
How is the zestimate for rental value?
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Love you 😘
The city view for a million more lol no thanks
G-Step, did you say ” the home of her sale” at 07:53? Did you mean “the sale of her home”?
i am a data scientist. If I do develop a house pricing algorithm that does better than what is out there, I am sure as hell not going to zillow for a measly $1mn. I am making my own housing website AFTER I have made $Bs in real estate haha.
they should add a checklist to at least a bit more accurate
Zestimates are click bait. It is used to market their websites
In my experience appraisers use the same sort of mechanistic criteria that these online algorithm use and banks will often reject appraisals that deviate too much from these values. Maybe things are different in California than they are here in the midwest but banks are an important factor in standardizing mediocrity. My house was designed by a famous architect. That is never taken into consideration in an appraisal.
Here is my problem. If there is a dumpy house in a nice neighborhood it will bring down the value of the other houses and that is why HOA’s exist along with nosy neighbors. While Graham is right with most of his points he forgets to point this out. People are so worried about what their house is worth that they go to crazy lengths to make sure the neighborhood stays in line so it will not devalue their investment. While it is not a perfect system by any means it is the system we all have to live with.
Real Estate Websites LIE (lowball owners!!!) Hahahaha
The worst is the pricing wars practiced in the Bay Area. One home in the neighborhood will list for $800K and after everyone is done fighting over it, it sells for $1.5 million. It makes it harder for anyone else to buy a home because once one house sells for that much, every homeowner in the neighborhood thinks their house is worth that much. People list their homes very low to maximize potential buyers knowing they will sell over $1.2 or $1.4 million. All of those estimate algorithms just make things worse, especially when ultimately a home is only worth what someone is willing to pay for it.
My ideal estimating algorithm would knock value OFF if the house were recently flipped, in anticipation of future tear-out-and-redo costs 10 years down the road.
Of course, you’ll never get enough data to power such an algorithm while the real estate industry is still powered by glorified used-car salesmen and -women that can’t even be bothered to proofread the copy-pasta from last week’s listing, and by sellers with a vested interest in disclosing a very selective amount of information about homes.
I found myself wondering why online home listings don’t utilize spherical photography. The answer is that some do, but it doesn’t let you exclude the “bad angles” of a room, so it’ll never catch on until 2D listings seem as anachronistic to future homeowners as videocassettes do to us today or until actual buyer’s agents (whose financial incentives actually align with the buyer’s best interests) catch on. A hypothetical buyer’s agent could probably make good use of spherical photography.
Who sells their real estate? Amateurs.
Kidding of course.
I did buy a house last year and while speaking with a loan officer, he mentioned how he kept flipping properties for fast cash and his regret in doing so. He lamented on how if he would have just kept them, he would have retired years ago.
I’m going to assume that you’re making assumptions about Zillow’s assumptions and calculations. You assume they take all data as equal and use them to create the average,. Why would they not weight the data or throw out data that’s obviously out of range, so that one sell very high or very low wouldn’t affect the average price very much if at all.
If you could build the algorithm, it would be worth a lot more than $1 million…
Don’t get the point of this .. are you trying to say that an obvious estimate is not accurate because the estimate is an estimate . And I can’t think of anyone that would buy a house based on a zestimate ALONE!. You can actually even look at the historical selling price on Zillow or any one of those sites. That to me would be a better online way to guesstimate
Graham…everything you were talking on this video is mute. The reason why is this… a home or anything else in the world is only worth what someone is willing to pay for it! It’s really that plain and simple.
Doesn’t matter if someone bought a home and paid $500,000, put $100,000 and wants $750,000 for the home. If NO ONE is willing to pay $750,000 and the ONLY willing buyers are offering $450,000 for the home, then that means the home is ONLY worth $450,000. That’s why realtors and real estate brokers are always “hyping up” features and bells and whistles of a home.Just to get a potential buyer to accept what a seller is asking for it.
Firsr world problems, lol
Do you think the algorithm does not calculate the outliers?
That’s really a dumb assumption
So are you telling me that the software doesn’t know to get rid of the outliers when calculating the price?
Tried watching this in bed while the wife was sleeping with no audio, funny enough the only closed captions option it had was in Korean. Not sure why.
I don’t know ANYONE who pays any attention to these estimates.
Sell your appraisal services, there’s a market here.
I’m buying a duplex right now that was just appraised to be worth 230k. The Zestimate on this property was 156k.
Yeah, an estimate is no gospel, but not a bad starting point. Realtors want things easy and have clients just say yes to what they say. And I’m very glad you’ve discontinued the use of that terrible bg music.
Overpriced homes looking for an excuse to remain high….
2:05…. You just explained the business model of multiple companies. Seems to be working
This is hilarious, just last night I was calculating the true value of a house.
Zestimate: $73000
True value: ~$20000
You can send someone in to collect that data. Feed that into the algorithm. That person doesnt need “years” of realtor experience. And collecting that data should not be awarded with thousands of dollars. Then it would be very difficult to make an estimate better than zillow’s, when zillow has all the data. Google and Amazon figured out a way to legally track everything you do and are making billions. With things like smart homes on the rise, collecting this data may become easier to automate. The world is only moving one way, and it is foolish to think AI will not replace your job.
impeding the home of her sale….
Or the prices are highly inflated because investors have been pushing up prices. Now to the point where the average person has little to no desire to purchase.
I have the same prob, can only snap one hand. lol
Figured that out
Yea they would have to at least also get some kind of quarterly payout for continuing to use their algorithm.
Have you ever tried getting a lakeside property thousands less for one across the street because its not on the water
One problem with the Zestimate is that the “owner” of the property can “update” info about the property… Erroneously. The single simplest edit is the sqft, which is never vetted, but the Zestimates primary factor is the sqft vs. the sqft value average in the area. So add on 1,000 sqft and watch your Zestimate value soar. Now that’s entertainment.
An AI deep learning program would be worth way more than $1 mil
Hey man, I haven’t looked behind the zestimate algorithms because they’re proprietary…, but I’d be truly shocked if one home makes a huge impact unless there’s almost no data around. There’s a lot that is done in modeling to prevent outlier sensitivity. Also, many algorithms use natural language processing, so they can grab from the description of the home to figure out if there’s a ‘new/renovated kitchen’ and so on. Not saying that these are accurate, but there’s probably ways to tickle the zestimate, just like the YouTube algorithm.
Snap ya fingers! Do ya step!
You can do it all by yo’ self!
Let me see you do it! Ay!
Let me see you do it! Ay!
Lol get it bro
YouTube, pourquoi donnez moi un avertissement en Francais? Je ne parle pas Francais…
Zillow overstates value to get subscribes = $profit. The same happened when I sold New cars. People say ” Kelly Blue Book said my car is worth.. $…. on trade “. We would say ok buy the new car from us and sell your car to Kelly Blue Book .
Akuracy
My Zestimate is 20% high yikes
OK , so what you are saying is that those websites use algorithms that look only at the square footage of the home , the lot size, and how many bedrooms and bathrooms the house has and then figure out the price per square foot. Multiply that times the square footage and you have the estimate. But there many other factors that determine the value that these algorithms do not see.
Well..in fairness to Zestimate the Financial lenders basically will use the same formula in determining what they believe is the area market value of the property you are looking to purchase . The banks don’t take into consideration property views and marble counter tops . The banks will look at a property square footage and average what was the selling price for a house with the same square footage in the area to determine if the property is priced reasonably . If the borrower wants to pay higher than what the bank value the property at then the borrower will have to assure that they are financially capable of paying the monthly morgage after they have utilized a substantial amount of their own reserved finance towards the down payment of the house .
If you are looking to buy a $800,000 house and the bank value the house at $500,000 and you decide to use up your entire $300,000 in savings to make up the cost difference the bank will still factor in if your monthly income will have enough financial cushion to cover the mortgage payment , your monthly reoccurring expenses , and for any life’s unexpected expenses . If it don’t then they will deem it a risky loan regardless if you plunk down the money to cover the extra purchase cost .
You can fuss to the bank about city views and Italian marble countertops all you want it will not move them .
Proof that robotic/A.I is still 1000 years away from being truly useful.
In Texas my property tax is based on appraisals which basically work this same way. What’s your opinion of a tax board appraisal value in relationship to market value? Is a tax appraisal amount a fair prediction of market value? I hired a tax lawyer to fight my tax appraisal value for ignoring the same factors that you mention which impact a property’s actual market value- roof etc…we lost and now my tax rate is locked at a significantly higher amount than when I bought the house two years prior. Is it fair for tax boards to ignore the same thing the zestimate ignores?! The property tax system in Texas is super messed up!
How to properly understand the internet?
FIRST….. I think I burned the script! ….. What was my next line?
ME: “Hysterically laughing at stupid humans”
If something like that could happen I would venture that would be worth allot more than a million dollars if you created your own listing website or sold it at a premium to other listing agencies
Should use median square foot
You didn’t expose any lie, you have called something that is openly presented as an “estimate” not 100% accurate, and birds go tweet. A real waste of a video and serious click-bait.
Some people think their dumps are a pot of gold. Section 8 homes (areas) bring down the value of neighborhoods & attract crime
Everyone likes their estimates until the property tax bill comes.
I think realtors hate Zestimates but buyers love them. They tend to be fairly close in my area. But I don’t live in LA, where housing prices are insane. Also the vast majority of buyers understand why one house is a lot higher than another.
If you wear a mask does the value goes up?
Anyone that thinks the Zestimate is an accurate price is an absolute fool. Of course there’s going to be details about a property that can increase/decrease its value. A simple website property search tool will never be able to know and calculate all of these things accurately and on a wide scale.
are you old enough to visit a casino, kid? 50% chance of winning are great odds.