Zestimates Compared to CMAs and Appraisals leave buyers confused! They are all valuations of a property’s worth but they do not necessarily reflect the same valuation. Which one should you rely on? Do you have a choice?

Zestimate Explained

When Zestimates are compared to CMAs and appraisals, a buyer may be surprised to discover they result in different valuations. The Zestimate provided by Zillow is a home valuation tool that uses an algorithm to estimate property values based on various data points and factors. It’s designed to be a quick, real-time estimation of a property’s worth, whether it’s currently listed (on-market) or not (off-market). However, there are important distinctions between a Zestimate, a CMA (comparative market analysis) provided by a Realtor and a traditional in-person appraisal conducted by a professional.

The Zestimate is an automated valuation model (AVM) that relies on public data and user-submitted information about the property. It uses statistical models to calculate an estimated market value.  It is not based on an actual visit to the property so the Zestimate does not consider whether there is a high voltage transmission line or parkland adjoins the backyard.  It does not take into account whether there is a Starbucks in the next block or three liquor stores and a tattoo parlor.

While Zestimates provide a quick and convenient estimate of a property’s value, their accuracy is contingent on the availability and accuracy of data. Homeowners should be aware that significant changes to a property, such as improvements or renovations, may not be immediately reflected in the Zestimate if the updated information is not yet included in public records or accessible data sources that Zillow uses. For precise valuations, especially in transactional contexts like buying or selling a home, a professional appraisal remains essential.

Zillow provides nationwide median error rates for its Zestimate which indicate the typical percentage differences between the Zestimate and the actual sale price:

  • For on-market homes (currently listed for sale), the median error rate is 2.35%.
  • For off-market homes (not currently listed), the median error rate is higher, at 7.74%.

Zestimates are useful for getting a quick estimate of a property’s value, especially for homeowners curious about their home’s worth or prospective buyers trying to gauge affordability.  It certainly is an entertaining way to start a conversation!  “My Zestimate is bigger than your Zestimate!”

If you are relocating to Bethesda or somewhere else in the DMV or you are downsizing and you want to start your search on line, Zestimates may be a good way to identify some neighborhoods you want to concentrate on.

How are Zestimates Calculated?

A property’s Zestimate is calculated by complex software using an “automated valuation model” that analyzes data points collected from users, public records, and multiple listing services. According to Zillow, here’s what goes into that equation:

  • Recent comps (geographic area can be as large as an entire county)
  • Home features (bedrooms, bathrooms, and more)
  • Physical attributes (square footage, acreage, and more)
  • Historical data
  • Tax assessments
  • MLS data
  • Listing price
  • Market trends (and seasonality)
  • Public data
  • User-submitted data

Zillow constantly tweaks and improves its algorithm, and the information input can change over time. For example, it used to be that Zillow didn’t include listing price data, but now it does. Additionally, not all MLSs participate in Zillow’s massive data collection. This results in a much more limited data set, further skewing a Zestimate, so understanding your MLS’s relationship with Zillow is also important.

Can a Seller Affect the Zestimate?

Yes, if a homeowner would like to influence the price shown on Zillow, they can do so by editing their home facts. Fixing any incorrect or incomplete information will help get the price as accurate as possible. Information such as architectural style, roof type, heat source, building amenities, and more can also be added.

CMA Explained

If you are actively hunting for a home or getting ready to sell your home, you need more detailed (and realistic) information that what a Zestimate can give you. Where do you get better information?  Ask a Realtor! Real estate agents create CMAs by looking at comparables, or comps – which are recently sold properties that are similar to the property in question.  Similarity is crucial because it gets you the most accurate apples-to-apples comparison.

Comps should ideally have the same number of bedrooms and bathrooms, be located within a quarter-mile of your home, and within 200 square feet of your home’s size. Whenever possible, they should be in your ZIP code and school district too.  It is helpful too for the comps to have similar upgrades (or lack thereof) and amenities.

Let’s say your own home has three bedrooms, two baths, and is around 2,000 square feet. Your neighbor’s down the block is also a three-bedroom, two-bath house clocking in at 1,950 square feet—and it sold last week for $300,000. Odds are, your place is worth about that same price.

If that home is less upgraded than yours, then your home should be worth more.  For example, if the home that just sold down the street doesn’t have a new kitchen or a garage and yours does, then your home should be slightly more valuable.   Sometimes the valuations that home owner apply to their homes can be a bit comical.  Chances are that the pink shag carpet in the basement will NOT net you $10,000 more.  Pools can increase value sometimes and actually decrease it at other times.  Pools in Arizona are appreciated.  Pools in New England are less popular.  That is why it is important to work with an experienced Realtor.

You should try to find at least three comparable sales to get a good price for your home.  The more comps you use, the better you can triangulate a home’s price, but if you have at least three comparable, recently sold properties (no later than six months old), you should be able to average out their prices and get a good sense of what a given home is worth.

Appraisal Explained

Congratulations!  Now you are under contract and you are applying for a mortgage.  The lender is going to require an appraisal on your new home as a condition of giving you a loan.  A home appraisal is an estimate of a property’s value by a licensed appraiser.  Unfortunately, the lender is not going to accept your Zestimate or your agent’s CMA.    You’ll want the appraisal to come back either at the loan amount or higher in order to qualify for a mortgage. The appraisal will also let you know that you’re making a good investment.  The appraisal will also assure the bank that you aren’t borrowing more money than the property is worth.

In most instances a lender will request a home appraisal, and then a licensed appraiser will be assigned by an Appraisal Management Company (AMC). The AMC will ensure that the assigned appraiser can perform an independent and neutral assessment of a property’s value, without pressure from the lender, buyer, seller or other interested party. Once the appraiser is assigned, they will schedule a time to appraise the home, usually within 48 hours.

When appraising the home, the appraiser will examine the home’s interior and exterior by walking the property and grounds. They’ll also drive around the neighborhood, research recently sold comparable homes nearby and analyze public record data. Then, they’ll compile a report on the home’s appraised value and share it with you and the lender.  The appraiser will complete the appraisal using a standard format, the Uniform Residential Appraisal Report.  When buying a home, you’re not obligated to share the home appraisal report with the seller, but you are responsible for paying the appraisal fee.

Appraisals Are Not Home Inspections

A home appraisal isn’t the same as a home inspection. An appraisal is an evaluation of the home’s condition to determine its fair market value. A home inspection is detailed examination of the home’s major systems to make sure the property’s structure, electrical components and plumbing are functioning as they should.

An appraiser will visually inspect the property and grounds, and then research similar homes in the area to compare them. An inspector will physically check the interior and exterior of the home and flag any structural, construction or mechanical concerns to you.  If you are using an FHA, USDA or VA loan, the appraiser may identify health and safety or structural issues such as flaking paint or a stair handrail that must be remedied as a condition of the sale, but that appraisal process still is not an appropriate substitute for a home inspection.

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