A financial tool that homeowners love — and love to hate — just got better.
On Wednesday, Zillow /zigman2/quotes/205077794/composite ZG +1.31% announced the winners of a contest launched to improve the accuracy of the Zestimate, the algorithm that helps approximate the value of houses.
The winning team was made up of data scientists and engineers from three countries. Chahhou Mohamed of Morocco, Jordan Meyer of the United States and Nima Shahbazi of Canada will be awarded $1 million for their work, which Zillow estimates beat the existing tool by 13%.
On average, Zillow said, the Zestimate is $10,000 off the actual sale price for a median-priced home of about $223,900, and the information gleaned from the Zillow prize winnings could shave $1,300 off that discrepancy. It also moves the Zestimate’s national median error rate below 4%.
The winning team, which called itself Team ChNJestimate, used machine learning techniques including what Zillow called “deep neural networks,” as well as miscellaneous data like commute times and road noise, to come up with their algorithm.
The Zestimate has always been intended as exactly that — an estimate. That hasn’t stopped some disgruntled homeowners from filing suit over what they viewed as deceptive practices. Still, Zillow acknowledged that there was room for improvement and launched the Zillow Prize contest in mid-2017 to crowdsource a better alternative.
Housing industry experts applaud both the innovation that brought about the original Zestimate and the company’s willingness to go back to the drawing board and ask for help.
“I think one of the reasons the Zestimate has been so wildly successful for Zillow is that it did tap into a curiosity that homeowners have always had about what their house is really worth,” said Rick Sharga, a longtime industry veteran now at Carrington Mortgage Holdings. “Since for most people a home is the biggest financial investment they’re ever going to make, it doesn’t hurt to have tools that can give you at least an approximation of what that asset is worth in today’s market.”
Using the Zestimate alone for making a financial decision wouldn’t be appropriate, Sharga said. “Don’t bet the farm on it. But for just checking the financial pulse of a neighborhood, it’s a fine tool.”