Zillow describes the Zestimate as a “great starting point” for determining the value of a home. However homebuyers and sellers often believe that the Zestimate listed on a home is the true market value of the home. And that causes issues when the true market value differs from the Zestimate’s projection.
MarketWatch’s Andrea Riquier gives us more details:
The suit claimed that home buyers read the estimate as an appraisal regardless of whether it was an official appraisal and expected to negotiate accordingly. Zillow, for its part, had stressed that the Illinois statute made clear that calculations formulated in the way that Zestimates are can’t be used as official appraisals.
The judge, in dismissing the suit, agreed. “Zestimates are not false, misleading, or likely to confuse,” the ruling read. “The word ‘Zestimate — an obvious portmanteau of ‘Zillow’ and “estimate’ — itself indicates that Zestimates are merely an estimate of the market value of a property.”
Zillow has consistently tinkered with the algorithm that powers the Zestimate over the years, improving its accuracy, measured by how close the Zestimate is to the eventual sale price of a home, from 14% in 2006 to 5% as of a few months ago. But a 5% error rate is still a 5% error rate, which leads to problems like lawsuits in Illinois.
Zillow wants so badly to make its Zestimate even more accurate that earlier this year, it launched a contest to improve the algorithm that powers the Zestimate, offering $1 million to anyone who could markedly improve the Zestimate’s accuracy.
But Zillow isn’t sitting on its hands and waiting for someone else to improve the Zestimate. Its analysts are also still working to make the Zestimate more accurate. In fact, as part of an announcement about the Zestimate contest, Zillow said Friday that it just released a “major” update to the Zestimate that brings the error rate down from 5% to 4.3% nationwide.
Zillow said that it accomplished this latest improvement by moving its data into the cloud. “To establish these new gains in home valuation accuracy, Zillow transitioned all its data to the cloud and can now compute the Zestimate in near-real time,” Zillow said. “Now, Zillow can process three times as much data as before, which allows its data scientists to experiment and iterate faster than ever, creating more accurate valuations.”
“The Zestimate is trying to answer an incredibly complex and important question, and with the strong contest submissions we’re already seeing, we are on pace to reach our goal of becoming one of the world’s most impactful machine learning competitions,” Stan Humphries, Zillow Group chief analytics officer, said. “In the meantime, we think homeowners will be pleased with the new enhancements we’ve made to ensure they have a trusted starting point when monitoring the value of what is often the largest purchase of their lifetime.”
Note: Just last week, a judge in Illinois dismissed a lawsuit brought by a number of homeowners who claimed that the Zestimate undervalued their homes and cost them money when they tried to sell their house.