Zillow is a new web site that promises to tell you what your home is worth by you just inputting an address. We will see very soon how accurate the numbers are. Here is what Zillow says is the way that they compute home prices, called zestimates:
How do we come up with the Zestimate? We compute this figure by taking zillions of data points — much of this data is public — and entering them into a formula. This formula is built using what our statisticians call "a proprietary algorithm" — big words for "secret formula." Currently, we calculate a Zestimate for more than 40 million homes. We are adding data all the time and in the coming months we expect to add Zestimates for many more homes in the U.S.
What’s in this formula? One eye of newt … Actually, it’s less wizardry than mathematics. When our statisticians developed the model to determine home values, they explored how homes in certain areas were similar (i.e., number of bedrooms and baths, and a myriad of other details) and then looked at the relationships between actual sale prices and those home details. These relationships form a pattern, and they used that pattern to develop a model to come up with a market value for a home.
Is that all there is to it? That’s oversimplifying something that is incredibly robust and sophisticated, but it’s the basics. Hundreds of home details feed into the formula and the home characteristics are given different weights according to their influence in a given geography and over a specific period of time. And, because the details are always changing, the Zestimate is extremely timely — it indicates the value of a home based on the most recent data available in an area. We receive new data and update the Zestimate daily to capture new sales in a neighborhood. However, there is a delay between when the county is notified of a transaction and when we find out about it. We might not know until next week about the sale of that house down the street from you that happened last week
Leave a Reply