Does the Zillow price represent the true market value? I was asked this question yesterday by a client and my answer is that it all depends upon how you're using the information.
Most people use Zillow pricing or "zestimate" to get a quick "price" of how much a home should sell for. They want the quick answer. They seem to think that Zillow is an authority on home pricing and if Zillow says the home should sell for XXX then that's the price they're willing to pay. Unfortunately, they fail to realize it is an estimate that is sometimes not based on a whole lot.
If you dig into Zillow's website you can learn more about their valuation process. Zillow states that it is an estimated market value, not a professional valuation. It is merely a "starting point" in determining the value of the home.
How do they come up with this "zestimate"? Well, they take "zillions" of data points and enter them into a formula. The formula they use has been "built by statisticians" using algorithim. Blah! Blah! Blah!
While Zillow does encourage home buyers and sellers to supplement the Zillow information with REALTOR CMA's, a professional appraisal, and of course, actually visiting the home, this information is buried in their website.
The problem I see with the "zestimate" is that all the math in the world can't measure up to working with a REALTOR that knows and understands the local market. A REALTOR that is working with clients on a daily basis, showing homes, listing homes and selling homes knows more about the local real estate market than some statisticians in an office in another part of the country.
It's too bad that so many people are relying only on Zillow's home valuation to determine home pricing.
