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Until recently, only people who needed to buy or sell a home were interested in the real estate market. The advent of online listing aggregators like Zillow.com, however, has created a new pastime of house “window shopping.” You can tour any listed home anywhere in the country without leaving your chair, a luxury that was once only available to licensed agents. And thanks to automated home valuation tools like Zillow’s Zestimate®, homeowners, buyers and sellers believe they can learn how much a house is worth in today’s market. But please beware!

Zillow, as one of the largest online real estate syndicators (thanks to its pending acquisition of Trulia), can provide misleading information to users who don’t understand how its valuation model works. The value it auto-generates as a home’s current worth is often inaccurate (either under- or over-inflated) causing disappointment for home owners, mismanaged expectations for buyers and headaches for agents. These problems are well documented in the industry and Zillow itself discourages homeowners from relying solely on its Zestimate, but these caveats are not widely published.

Blind to Beauty

Zestimates don’t take into account the actual condition of a home so if the rental property next door sold last month for $300,000 and you added a pool to your home, your Zestimate wouldn’t look so attractive. Zillow now allows homeowners to manually enter this kind of property information online, but unless everyone in your neighborhood did so for their own home and completed it honestly, your Zestimate would still be inaccurate.

Consider the Source

Zestimate pulls data for its model from a variety of public and user-submitted data sources. This includes MLS sales data, public tax records, and, scary enough, content and photos from Craigslist.com, a public site often used by For Sale By Owners. In other words, Zestimate data is not filtered for accuracy.

Not Recognized by the Lenders

A Zestimate is not a reliable appraisal and would never be used by reputable mortgage lenders. “Zestimates are typically inaccurate and not a valid source for our purposes,” said Suzanna McCoy Salmon of Starkey Mortgage. “We only use highly trained and qualified appraisers to determine fair market value.”

Broken Sources

The Zestimate for a luxury Buckhead townhome my buyers bought in 2011 for $1,350,000 is currently listed at $232,061. I don’t know from what source Zillow is pulling its data in this case but it certainly hasn’t picked up on the fact that 5 of the 8 townhomes in the same development have sold between $1,500,000 and $2,000,000 since my clients bought theirs. Yipes!

Zillow itself is useful tool for seeing what has recently sold in your area but a Zestimate shouldn’t be used solely as the basis for making a real estate decision. I’d love to hear your feedback on this product and I’m always available for questions and comments from the real-estate curious!