Zestimate Improves Accuracy Through $1M Contest

Picture of grey chair in room for Real Estate News for Investors Podcast Episode #760

Zillow unveiled a new version of its Zestimate home valuation tool that’s supposed to be much more accurate than previous versions. Zillow claims the error rate is now less than 2% thanks to the ideas it collected in a $1 million contest to make the Zestimate smarter. It’s now claiming to have the most accurate home valuation tool, although it does face stiff competition from Redfin, and others.

Among the improvements that Zillow made to the Zestimate is the use artificial intelligence to analyze photos and automatically determine the value of upgrades. It does this with a type of machine learning called “neural networks” combined with “computer vision.” Neural networks are computer systems that work like the human brain and nervous systems. They use computer vision to compare already known images to new ones, and draw conclusions based on that.

Zestimate Can “See” Upgrades

Zillow says the Zestimate “can now in a sense, see in photographs features that humans would instantly understand, such as curb appeal and natural light.” It says this technology makes it possible for the Zestimate to see the difference between high and low-end finishes, for example. It can also identify updated features like new bathroom fixtures, fireplaces, and remodeled kitchens, and determine their value.

Most of the interior photos come from listing agents, when a home goes on sale. Zillow uses Google Maps for exterior shots, or new photos taken from the sidewalk or street. Housingwire says, it can also use photos from the city or town assessor’s office that are publicly available, along with ones that a seller might supply. (1)

Zillow’s Chief Analytics Officer and Zestimate creator, Stan Humphries, says, “The new Zestimate was inspired by the way the human brain interprets scenes, objects, and images.” He says, “It’s a big leap forward, because it means the Zestimate can now understand not just a home’s facts and figures, but its quality and curb appeal.”

Zestimate Uses “Real-Time Data”

The Zestimate is also using more real-time data from listings including the asking price, the listing description, and the number of days its been on the market. When Zillow first launched the Zestimate, it updated the Zestimate monthly. Calculations also include information from local county and tax records, multiple listing services, and brokerages across the country.

The Zestimate has a lot of name recognition, but it’s just one of several of these home-valuation tools offered by major real estate sites. The Redfin Estimate is also well-regarded. It claims to have a 1.64% error rate for 50% of the homes that are currently for sale. It says on its website that it uses MLS data on recently-sold homes to calculate the value, and more than 500 other data points, such as a home’s location on a busy street, or next to a lake with a beautiful view.

Competition from Redfin’s Estimate

Redfin also differentiates between for-sale and off-market homes. The error rate for off-market homes is 6.10% “of the eventual sale price half of the time.” Unlike the Zestimate, the Redfin Estimate is only calculated by computer without a system for homeowner or real estate agent input.

These figures have also caused some controversy among homeowners who don’t agree with these valuations. An appeals court recently sided with Zillow in a long-running legal battle over the accuracy of the Zestimate. As reported by Geekwire, a group of Illinois homeowners sued Zillow a few years ago. (2) They say the Zestimate tool undervalued their homes, and made it harder for them to sell. They accused Zillow of marketing the tool as an appraisal but the appeals court judge said the Zillow website explains that the Zestimate is only an estimate, and “not” an appraisal.

None of the home valuation tools you find on Zillow, Redfin, Realtor.com, and others like relative newcomer, Nextdoor, are meant to be appraisals. The websites tell you to use them as “starting points” in determining a home’s value or asking price.

Home Valuation Tools Getting Smarter

Maybe one day they will be equivalent to an appraisal. They do appear to be getting smarter. Zillow improved the accuracy of its tool with the help of 3,800 teams of data scientists from 91 countries and a $1 million prize. Zillow says, the grand prize winners contributed much of the current upgrade. In their submission, they offered “sophisticated machine learning techniques to identify and take into account special home features and location details, such as number of bathroom fixtures, commute times, and even a home’s proximity to a park or freeway.”

Zillow’s CEO, Rich Barton, said in April, that at some point in the future, the Zestimate will double as an automatic “offer’ in the company iBuying program. According to Inman, he said in an interview with a Boston-based public radio station, “That’s the ideal. I would like to have the Zestimate be a live offer for every house in the country.” He also said, “it will take quite some time to get there.” The recent announcement about Zestimate accuracy is certainly a big step in that direction. (3)

Links:

(1) HousingWire Article

(2) Geekwire Article

(3) Inman Article

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