Zillow's Zestimate: An Important Lesson in Transparency

Herosmyth Staff
min read
August 1st, 2017

I still remember the days when my whole family would pack into the minivan and cruise down the streets of the wealthiest neighborhoods on the Chicago lakefront.

My mom would have her smart phone in hand, Zillow app open and ready.

As we passed mansion after mansion, she’d pipe up with a number: “3.2 million on the right.”

We’d all swivel our heads to take a peep at this highly-valuable home that she called to our attention and then slip into a quick daydream, imagining what it would be like to spend our teenage days lounging on luxurious patio furniture, overlooking the glorious waters of Lake Michigan without a care in the world.

view of house through gate

Well, it’s sufficient to say we were not nearly rich enough to make that dream come true.

And so we vicariously lived out our opulent fantasies through the Zillow mobile app, all while chugging along in our not-so-glamorous minivan, indubitably appearing entirely out-of-place among the steady stream of expensive-looking sports cars cruising by.

Whether we were in the mood for daydreaming or not, my mom would announce our dream homes’ values to us wherever we went.

Because of this, I grew up with this notion of Zillow being a handy app for normal folks who wanted easy access to the cost of their ideal homes, whether the price was attainable or not.

Zillow has come a long way since its launch in 2006, and it has become quite the popular tool (even outside of my family) with over 160 million monthly users.

Even so, the company has encountered some drama as of late when it was brought to light that their accuracy in certain features was subpar.

But before we get into that, let’s get acquainted with what makes Zillow so successful - even with all the recent drama.

Zillow’s Goal: “Power to the People”

family looking at recently sold home

The company’s mission, to “empower consumers with data, inspiration, and knowledge around the place they call home, and to connect them with the best local professionals who can help,” lends insight into how things work at the company.

The key word here is “help” - the company wants to help everyone they can, perhaps as a means of reversing the stereotype of not being able to fully trust the real estate industry to have the consumers’ best interests in mind.

The online real estate marketplace allows homeowners to search for listings, compare them, and connect ready buyers to the right professionals.

Zillow CEO, Spencer Rascoff, says that Zillow’s goal all along has been to unlock the “secret database” of information that was previously only available to industry professionals.

Instead of letting the real estate agents play the role of gatekeeper, the company has been working from the start to make this information available to the public.

Why? There are two main reasons, and neither revolves around money.

First off, easy accessibility gives people the information (and therefore confidence) they need in order to sell their home in a smart and stress-free way.

Buying or selling a home is a big, expensive, emotional, and typically rare endeavor - the average homeowner will only partake in this sort of transaction every decade or less, depending on the state of the market at the time.

By giving the power to the people, the homeowners and sellers, via transparency, Zillow makes the whole process less miserable than it used to be.

Secondly, giving everyone access to the “secret” industry information makes the market more transparent and efficient as a whole.

Anyone in the market can easily study up before meeting with a professional, which makes the transaction move quicker and keeps the home buyer or seller more informed and prepared along the way.

Even with how great the company’s goal sounds, it’s one thing to voice it...and another to achieve it. (Cue dramatic music)

Zillow’s Problem

woman in protest with sign that reads we are better than this

Zillow has a proprietary home-price tool called the Zestimate; it appraises over 110 million homes in the U.S. and has been around for 11 years.

These estimates are computer-generated on every home three times per week, so you can bet your boots that they’re pretty up-to-date at all times.

The beauty of it all is that now, the data that previously was only available to real estate agents, mortgage lenders, and appraisers is finally available to homeowners too - the people who truly deserve to know what’s going on.

The tool works by pulling county and tax assessor records, direct feeds from brokerages and listing services, and direct input from homeowners using Zillow.

The living database nature of it allows the Zestimate feature to be more accurate with more time and data, much like Wikipedia.

Even so, this feature was designed to serve as just a starting point to help people estimate the value of their homes.

The tool shouldn’t be used as more than a conversation point - and certainly shouldn’t become the final word on the value of a home; that’s what the professionals are for.

In the words of Rascoff...

“We call it a Zestimate, not a Zappraisal.”

Spencer rascoff

(Good one, Spencer!)

Though the accuracy has steadily improved over the years and now sits at 5%, officials still think they can do better, which shows how Zillow strives to go above and beyond on the customer service front.

There has been heated debate amongst homeowners across the country on the accuracy of the tool, and one major event accidentally propelled the accuracy problem into the spotlight.

Zillow’s very own CEO, Rascoff, sold his home for 40% less than the Zestimate in early 2016, and homeowners lost their minds over the kerfuffle.

This put Rascoff in a somewhat defensive position once everyone and their dog caught wind of the news.

He acknowledged that, yes, Zestimates can be inaccurate, and no, the gap between the Zestimate and sales price really wasn’t that much larger than the typical gap between a home’s initial price and final sale price.

Because the tool uses public information to compare and estimate the value of a home, as mentioned earlier, the Zestimate is not the final step - consulting a real estate agent or other professional is still a must.

Factors like the condition of the interior are unknown to the software and therefore not part of the calculation, understandably.

Imagine having a Zillow representative invite herself into your home to take a closer look inside and more accurately value your home...just in case you sell someday. Maybe.

Zillow continued to be under fire for the proprietary tool when a group of Chicago home builders filed a class-action lawsuit claiming that the Zestimate tool misleads home buyers with lowball figures.

Again, Zillow had to jump in and explain itself, from the estimated nature of the tool’s home values to the fact that the Zestimate should be the first and certainly not final step in the process.

Over a year before this final incident, Zillow had decided to do something major and public to fix the tool - and yet, with the announcement just a week after the lawsuit, the public interpreted their next move as a reactive PR stunt.

So, what did they do to ameliorate the situation?

Zillow’s Solution

code on a computer screen

Likely fed up with consumers’ jeers and demands about the Zestimate, the company launched the “Zillow Prize” - or a massive $1 million award to whoever can improve the Zestimate algorithm the most.

To officially win, the new algorithm must beat Zillow’s current benchmark accuracy.

It’s not a winner-takes-all contest, either, with second place taking home $100K and 3rd place winning $50K, which shows that Zillow takes the time to “thank” participating data scientists for their efforts and commitment to helping the company improve their tool.

The fact that Zillow goes above the minimum spending amount to get the work done exemplifies the company’s genuine dedication to its customers’ needs and gratitude to willing volunteers.  

What’s even more important is that, in order to improve the tool, participants gain access to a portion of Zillow’s proprietary data for the first time in the history of the company.

This means that the company is not afraid to share its internal data for the sake of helping improve the experience for all.

For Zillow, it’s not about having secret, profitable data; it’s about focusing on the customer.

PR stunt or not, Zillow recognized that their free tool could be even better and gave the community a chance to play a major role in the whole hullabaloo, which is pretty cool if you ask me.

What All This Says About the Brand

The online real estate database company proves itself in other areas, too; the Zillow Prize is just one part of it.

Customer First

track relay race

Richard Barton and Lloyd Frink founded Zillow on the very core belief that the consumers in real estate deserve to have access to all of the important, previously-secret information that they need to buy or sell a home in a smart and informed way.

The whole company is based on this value and resonates through all of what they do.

The company founders and CEO do a great job of promoting this value throughout the brand story and company culture by empowering both employees and consumers to make the most of the website and apps - be it encouraging database perfection with user input capabilities or allowing employees time for innovative side projects to improve the experience.

They want to help, not just make money

man extending hand

First of all, as is apparent with the Zillow Prize, the company won’t settle for just “good enough.”

Their data science team works continuously to improve the accuracy of the Zestimate so that consumers can utilize the tool with more trust.

Arguably more importantly, the company tells the truth, whether it’s advantageous for them or not.

During the housing crisis about a decade ago, Zillow shared data about mortgages and home values to help consumers figure out how to continue on with their lives during hard times.

Even though this goes against their main business model, the company shared an unpopular truth: it actually made more financial sense for many families to rent instead of owning a home.

This truth was neither true to the company’s sales strategy or profited them in any way, but Zillow disclosed the facts anyway - for the good of the people struggling in the community.

They also launched the Community Pillar program, the brainchild of Rebekah Bastian (VP of product teams) - a project that she took on during one of the company’s hack weeks, where employees can take time to work on side projects that they’re passionate about.

Because of Bastian’s eagerness and success in ideating the Community Pillar Program, Zillow officially incorporated the tool into its brand.

The way the tool works is that it makes it easier for people with imperfect housing applications - bad credit, criminal records, evictions, job instability, bad rental histories, and so on - to find a place to live by connecting them with self-identified landlords who are willing to accommodate them in hard times.

It helps with the affordable housing and homelessness issue in Seattle, where Zillow is headquartered, and beyond.

This kind of initiative just shows how Zillow genuinely exists to help people with real estate of any kind; the company could focus its efforts only on the most profitable of customers, but chooses instead to help any kind of customer that’s willing and ready.

Furthermore, the hack week event that Zillow hosts three times a year helps their employees feel empowered in their work and to have the creative freedom to try new things without fear or lack of time.

Finally, and most importantly, Zillow actively strives to be…


piece of ice held up over mountain

The core company belief of letting consumers in on the “secret database” of real estate shows how Zillow is founded on a principle of transparency: no hidden data, no advantageous positioning of facts, no nothing.

Everything is out on the table for everyone to see, which allows the company to gain the public’s trust and receive a well-earned positive reputation.

The way in which Zillow publicly and openly handles complaints against the company surmounts to gaining even more trust: rather than hiding their mistakes or pretending that they don’t need to improve, Zillow makes a grand event out of a pitfall to celebrate continuous improvement.

What’s more, the company’s CEO is very open to discussing these kinds of things with the public and media, rather than declining to comment like many brands do in a moment of crisis.

The company, when all is said and done, just wants to help people buy and sell their homes - and will do anything it can to make it easier for their customers.

And that, my friends, is how Zillow succeeds in its industry: by staying open and honest in all that it does, like acknowledging that it could always improve to better serve its customers.