Zillow’s Zestimate may be popular, but it’s far from precise. It doesn’t see inside a home, understand local market trends, or account for risk tolerance, yet many sellers treat it as fact. Pricing a home isn’t about an algorithm; it’s about strategy. Overpricing can lead to price cuts and lowball offers, while underpricing can leave money on the table. Meanwhile, market conditions shift, and buyers react accordingly-none of which the Zestimate considers. Zillow’s own $881 million house-flipping failure proved that pricing is more than just numbers on a screen. So, what’s the real strategy for getting the best price for a home? It starts with knowing how risk plays into the equation.
Eric Andersen, B.A., M.Div.
Owner/Designated Managing Broker, Andersen Realty Group
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Transcript:
What if I told you Zillow’s Zestimate isn’t designed to be accurate, but to keep you clicking? Accuracy was never Zillow’s concern when publishing their blind guesses at home values. The real goal was driving traffic to their site, and on that front, it gets an A+. I’m Eric with Andersen Realty Group, and I get the appeal. Who doesn’t want to know what their home is worth? The Zestimate gives homeowners a number, updates from time to time, and looks official. It must know what it’s doing, right?
Except the Zestimate doesn’t see the interior condition of a home, understand the local market, or account for any psychological factors that influence sale prices. It doesn’t weigh risk or have a pricing strategy. Most importantly, it doesn’t consider any personal factors that drive a seller’s pricing decisions, such as their timeline, financial needs, or risk tolerance. It’s just an algorithm. And algorithms don’t sell homes—strategy does.
Zillow’s $881 Million Mistake
Selling a home isn’t a simple math equation. If it were, Zillow would have figured it out when they tried flipping homes in 2021—and lost eight hundred eighty one million dollars doing it. The company relied on Zestimates to predict pricing trends, assuming their algorithm could determine home values without considering buyer psychology, negotiation dynamics, or local market expertise. Who could have guessed a tech company in Seattle wouldn’t understand the real estate market in the western suburbs of Chicago? Turns out, a lot of us. Zillow’s failed flipping experiment proved that home values can’t be determined by a formula alone. But did that stop them from publishing Zestimates? Of course not. They drive too much traffic.
The Zestimate provides a number, but it doesn’t tell a seller what that number means in the context of their sale. It doesn’t factor in whether a home needs to sell quickly, whether buyer demand is shifting, or whether other homes in the area are competing for attention. It’s a data point, and often not a very good one, at that. Even Zillow admits its median error rate is seven and a half percent, which means the typical Zestimate is off by more than twenty five thousand dollars based on current national home values. Imagine a bank estimating your checking account balance with a seven percent margin of error. You’d switch banks. But when it comes to their homes, many consumers continue to trust Zestimates as fact. And that’s just the median error rate—Zillow doesn’t publish its average error rate, which is undoubtedly much higher. Friends don’t let friends trust the Zestimate.
Two Pricing Pitfalls
The Zestimate doesn’t just miscalculate home values. It also fails to warn sellers about the two biggest pricing mistakes: overpricing and underpricing. Overpricing happens when sellers assume their home will sell for more than the market will support. The Zestimate might say a home is worth five hundred thousand dollars, but if similar homes are sitting unsold and buyer activity is slowing, that number’s meaningless. Overpriced homes go stale, attract lowball offers, and typically sell for less than if they had been priced strategically from the start.
Underpricing carries the opposite risk. Some sellers list below market value in hopes of starting a bidding war. And while this may work in a competitive market with limited inventory, it’s a mistake to anchor your price too low. And, in such an interest-rate sensitive sector as real estate, any jump in rates can cool demand, which can cause the underpricing strategy to backfire.
The Zestimate doesn’t weigh these risks. It doesn’t track local bidding activity or know when homes in a given price range are stagnating. It just picks a number. And as long as people keep clicking, Zillow will keep giving the people what they want.
How Risk Tolerance Guides Strategy
Every seller approaches risk differently, and pricing strategy should reflect that. A conservative seller, someone with low risk tolerance, prioritizes certainty. They price competitively from the outset, knowing well-priced homes attract serious buyers quickly. They know you only have one chance to make a great first impression. They aren’t interested in gambling and would rather secure a strong, reliable offer than chase a hypothetical windfall.
A moderate risk taker is willing to test the waters, listing slightly above market while staying flexible. If buyers aren’t biting, they adjust before losing momentum. Their strategy balances the potential for a higher price with the reality of buyer behavior.
On the other end of the spectrum is the aggressive seller. Some list well above market value, betting that the right buyer will eventually pay a premium. Others price significantly lower, hoping to create a feeding frenzy that drives the final price way up. It’s a high-risk proposition that can result in steep gains or steep losses. Unless you’re willing to gamble with what may be your biggest asset, it’s usually best to price your home strategically from the start.
The Market’s Role in the Equation
The Zestimate doesn’t account for market conditions. A strong pricing strategy depends on recognizing whether the market favors sellers, buyers, or sits somewhere in between. In a seller’s market, where inventory is low and demand is high, pricing strategies can be more aggressive. Slightly underpriced homes can trigger multiple offers, while even higher-priced listings may still sell quickly. In a balanced market, precision is key. Overpricing kills momentum, while underpricing can send the wrong signal to buyers. In a buyer’s market, where inventory is high and demand is weaker, overpricing is a disaster. Buyers have options, and sellers who price too high risk being ignored altogether. The Zestimate doesn’t account for any of this. It doesn’t track interest rate shifts, sudden inventory spikes, or changing buyer sentiment. A strategic seller does.
Your Home Deserves More Than an Algorithm
The Zestimate doesn’t adjust for a seller’s personal goals, the psychology of buyers, or the level of risk a seller is willing to take. It’s not a pricing strategy; it’s just an estimate. Smart sellers don’t let an algorithm dictate their home’s value. They assess the market, understand their own risk tolerance, and price strategically to achieve the best outcome. If you’re in the western suburbs of Chicago and want real strategy, and not just a Zestimate, reach out anytime. And if you found this video helpful, be sure to like, subscribe, and turn on notifications. I’m Eric with Andersen Realty Group, a family owned brokerage where we treat our clients like family.