Profile picture for 1ter

how does zillow set home values?

The homes I've been shown in El Dorado Hills, California are listed at several hundred thousand dollars more then what they are valued at in zillow!  I get the economy and all but why are they off by this much? 

  • March 04 2011 - El Dorado Hills
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Answers (3)

Profile picture for Blue Nile
Now, if you want your agent to show you homes that are "below" the Zestimate value instead of above, just ask your agent to show you the "fixers" instead of the ones the agent thinks are in "excellent" condition.

What the agent shows you is what you ask for, and what the agent thinks you can afford and are willing to spend base on what you have revealed about your finances.  You should never reveal any information about your finances to any agent, but only let the agent know what your search criterion is.
  • March 04 2011
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Profile picture for Blue Nile
And if you are asking how a Zestimate is obtained...

Zillow only uses county record data; upgrades don't count for the estimates.  Neither does views, ocean front, traffic, noise, problem neighbors, maintenance condition, roof type, insulation, roof slope, ceiling heights....

Simply it is "multiple linear regression" (look up the LINEST function in your Excel program and look at example #3), also known as "least squares curve fit".

The recently sold data is collected for the area (by distance, not neighborhood; larger distance for rural, closer distance for dense city areas...), then curve fit to the county data:
1) house sqft
2) lot sqft
3) # bedrooms
4) # bathrooms
5) # stories
6) year built
7) tax assessed value (adjusted for local rules)
8) last sold price/date
9) covered parking (if in the county records).

Then the sold units are tested against the curve fit results, and if way out of line, those units are excluded, and new coefficients calculated.

Then, with those coefficients, the county data for the properties are used to calculate an "estimate"; not a "quote", not a "CMA", not an "Appraisal", not a "market value", not a "sale price", not a "list price", not an "offer price", not a "loan qualification"...

So, if two identical properties (which really can't be identical as they can't be in exactly the same position...) sold for exactly the same amount, but 6 months apart, and the market had been "declining"; the one that sold earlier would be assumed by the "curve fit" to be "worth less" since the market declined since.  It doesn't mean it is worth less, it just means that was what the market trend implied.

Notice, that the only place that things like fine cabinetry and extra insulation are factored into the estimate are:
1) the last sold price/date
and
2) the county tax assessed value.

As for owner corrections to the county data; yes they are factored in; but they don't just substitute the data outright to minimize "gaming" the estimates.  As for exactly how they factor them in; they don't really want us to know the limits accepted, nor how much correction is applied when, as giving such info just encourages "gaming".

The "range" given is from the R^2 value obtained from the curve fit.

In other words, don't worry about it.
  • March 04 2011
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Profile picture for Blue Nile
Of course Zillow doesn't "set" any values; they "track the market" using Linear Regression.

Yes, there is a know issue for getting "useful" estimates in the $2 million and up price range; as there just aren't a lot of multi-million dollar properties selling to properly weight the high end using Linear regression of what sells in the area to the 9 county records data items.

Here is a chart I did a couple days ago of % difference of Zillow estimate to "list price" in my area.  Remember though, list price is not sales price, and in my area, Median sales price is 3% bellow Median list price; and each month, approximately 25% to 35% of the listings are reduced in price by about 6% to 7%.



Web address for full size image to read the numbers:
http://photos3.zillow.com/is/image/i0/i5/i7519/IS1ht1e6q21e0f7.jpg


Equation for that higher end %off adjustment?
%off = 4E-15x² - 1E-7x - 5.23%
where "x" is the "listing price".

The R^2 value for that curve fit is 0.5292
  • March 04 2011
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