Can You Really Trust Online Home Estimates?

For millions of homeowners, checking their Zillow Zestimate has become as routine as checking a stock portfolio—a quick hit of seeing your home’s estimated value, right at your fingertips. With 178 million monthly users and over 100 million homes covered, the platform’s instant, free, and convenient appeal is undeniable.

But here’s a famous cautionary tale: Spencer Rascoff, Zillow’s former CEO, sold his own home for a staggering 40% less than its Zestimate. This story highlights a critical fact that many homeowners don’t realize: Zillow itself calls its Zestimate a “starting point… not an appraisal”¹.

If the creator of the system can be off by that much, how accurate are online home valuations for the rest of us? Relying on an automated number for your most valuable asset could be a mistake worth tens of thousands of dollars.

In this article, we’ll examine how these powerful algorithms work, reveal the data behind their wildly varying accuracy rates, identify what they systematically miss, and show why local human expertise remains irreplaceable when precision—and your equity—matters most.

How These Algorithms Actually Calculate Your Home’s Value

Automated Valuation Models are algorithms designed to crunch massive amounts of data in seconds.³ Think of them as sophisticated calculators—impressive in computational power, but limited by the quality and completeness of their inputs.

These systems analyze public records, tax assessments, recent comparable sales from the MLS, and basic property characteristics like bedrooms, bathrooms, and square footage.⁴ For standard properties with plenty of recent comparable sales, this data-driven approach can produce reasonable estimates.

But here’s the fundamental limitation that shapes everything else we’ll discuss: these models rely purely on historical data and never actually visit your property. They’re backward-looking by design, using what sold yesterday to predict what might sell tomorrow, and while an algorithm can tell you that your home has three bedrooms, it cannot tell you that the primary suite has stunning morning light that makes buyers fall in love.

Accuracy and When Online Estimates Miss the Mark

Now for the numbers that every homeowner needs to understand.

When discussing AVM accuracy, you’ll encounter the term “median error rate.” This measures how far the estimate typically deviates from the actual sale price—specifically, half of all estimates fall within this percentage, and half fall outside it.² Lower is obviously better, but context is everything.

The On-Market vs. Off-Market Divide

Here’s where online home estimate accuracy gets interesting—and where most homeowners make their biggest mistake.

Platform	On-Market Error	Off-Market Error
Zillow	1.94% median	7.06% median
Redfin	1.98% median	7.72% median

When a home is actively listed for sale, AVMs perform surprisingly well. Zillow’s median error rate drops to just 1.83%–1.94%, while Redfin achieves 1.98%.^2,5 These are impressive numbers. Why? Because when your home hits the market, these algorithms gain access to fresh, verified MLS data—professional photos, detailed descriptions, and real-time pricing intelligence.

For off-market properties—which describes your home right now if you’re just curious about its value—the median error rate skyrockets. Zillow’s accuracy drops to 7.06%–7.5%, while Redfin’s plummets to 7.66%–7.72%.^2,5 That’s not a minor adjustment. That’s a fundamental breakdown in reliability.

What This Means in Actual Dollars

Let’s make this tangible. On a $400,000 home, a 7% median error translates to ±$28,000 or more—and remember, that’s the median, meaning half of all estimates miss by even more than that. For a $600,000 property, you’re looking at potential discrepancies exceeding $40,000. For luxury homes, the gap can easily reach six figures. The difference between an accurate valuation and an algorithm’s best guess could equal is immense—so it’s important to understand their limitations.

The Algorithm’s Blind Spots: What Online Estimates Cannot See

If AVMs have access to so much data, why do they miss by such significant margins? The answer lies in what they can’t measure.

The Condition Conundrum

This is the AVM’s Achilles heel. Every algorithm must assume your home is in “average condition.” Your newly renovated kitchen with custom cabinetry? Average. Your finished basement adding 600 square feet? Average. Your brand-new HVAC system? Average. Flip it around—deferred maintenance, a crumbling driveway, outdated bathrooms—all get the same treatment. This isn’t minor—condition often accounts for significant price variations between otherwise identical properties.

Location Nuances and Human Appeal

Algorithms understand neighborhoods but struggle with subtleties. Two identical homes—one on a quiet cul-de-sac, another backing a busy road. Same value to an algorithm, vastly different to buyers.

Market Lag and Unique Properties

Because AVMs depend on historical sales data, they lag behind current conditions. In rapidly moving markets, this lag can render estimates nearly useless. For custom homes, luxury properties, or anything unique, AVMs often fail completely—there simply aren’t comparable sales to analyze.

The Solution: Why a CMA Is the Indispensable Tool

A Comparative Market Analysis (CMA) is the professional valuation tool that real estate agents provide. It’s the bridge between raw data and real-world value—combining analytical power with human expertise and local knowledge.

What Makes a CMA Superior

Physical Inspection: Unlike an algorithm, your agent actually walks through your home. They see the quality of updates, evaluate floor plan flow, notice natural light, and assess the overall “feel” that influences buyer psychology. They identify value-adding features no database captures.

Micro-Local Knowledge: Agents live and breathe their local markets. They know which streets command premiums, understand seasonal patterns and inventory levels, and track current buyer demand. They explain not just what your home is worth, but why—and how to position it strategically.

Real, Adjusted Comparables: Your agent doesn’t just pull recent sales—they analyze and adjust them. They can justify why your home is worth $20,000 more than one down the street: “Their kitchen had 1990s oak cabinets; yours has modern shaker style buyers want, justifying a $15,000 adjustment. They had builder-grade carpet; you have refinished hardwood, worth another $10,000.”

Feature	AVM (Zestimate/Redfin)	CMA (Agent Valuation)
Who provides it	Automated algorithm	Licensed local agent
Property Inspection	No physical walk-through	Yes, condition is assessed
Neighborhood Nuance	Limited (based on ZIP/broad area)	Deep local insight (street, school zones, micro-market)
Update Frequency	Automated (can lag behind market shifts)	Real-time human context
Accuracy	~2% (on-market), ~7% (off-market)	Typically closer to final sale price
Pricing Strategy	None (provides only a number)	Tailored strategy (under-list, market positioning)
Best Use	Rough, initial estimate	Serious pricing & selling decisions

Why Pricing Correctly From Day One Matters

For sellers, an accurate CMA prevents the two most expensive mistakes. Overpricing based on an inflated estimate leads to your home sitting stagnant—each week without offers damages your negotiating position and ultimately results in selling for less than if you’d priced correctly initially. Underpricing based on a conservative algorithm means leaving tens of thousands on the table. In real estate, you rarely get a second chance at a first impression. The initial listing price sets market perception, and getting it right requires the precision only a CMA provides.

When Online Valuations are Useful

For Sellers: Never set your listing price based solely on an online estimate. Use it as a conversation starter, but rely on your agent’s CMA to build a strategic, defensible pricing plan.

For Buyers: Use online estimates to establish a general ballpark before you start searching, but trust your agent’s analysis of recent comparable sales when crafting offers. The algorithm doesn’t know that three other buyers are submitting offers this weekend—your agent does.

BOTTOMLINE: Technology Is a Tool, Not a Guide

Online home valuations are impressive tools for satisfying curiosity, but they remain prone to significant error—especially for off-market properties where median error rates of 7-8% translate to tens of thousands of real dollars. The blind spots around condition, location nuances, and market timing aren’t minor technical limitations—they’re fundamental gaps that only human expertise can fill.

When it comes to your largest financial asset and a decision that will impact your life for years, technology can give you a ballpark, but only a professional CMA can give you the strategic precision you need.

Ready to know what your home is really worth? Contact us today for a complimentary Comparative Market Analysis—a personalized, in-person valuation that examines your specific property, incorporates current market dynamics, and provides the strategic guidance the internet simply cannot match.

Sources

1. Inman – https://www.inman.com/2016/05/18/zillow-ceo-spencer-rascoff-sold-home-for-much-less-than-zestimate/
2. Zillow Zestimate Accuracy – https://www.zillow.com/z/zestimate/
3. Rocket Mortgage: Automated Valuation Model – https://www.rocketmortgage.com/learn/automated-valuation-model
4. Experian: What Is an Automated Valuation Model – https://www.experian.com/blogs/ask-experian/what-is-automated-valuation-model/
5. Redfin – https://www.redfin.com/redfin-estimate

August 2024

A recent survey found that more than half (52%) of American homeowners have a renovation project planned this year.1 If you’re among them, you know that embarking on home improvements can be both exciting and daunting. According to the survey, the median renovation budget is around $15,000, so you’re probably investing a significant amount—and you’ll want to ensure your project’s success.¹

One of the most critical decisions you’ll make is choosing the right contractor to bring your vision to life. However, many homeowners fall into common pitfalls during this process, leading to stress, financial strain, and subpar results.

In this guide, we’ll explore seven mistakes to avoid when hiring a contractor to ensure your project runs smoothly from start to finish.

1. SKIPPING THE RESEARCH PHASE

A common mistake homeowners make is rushing into hiring a contractor without proper research. But to ensure the success of your renovation, it’s crucial to take time to meet with multiple candidates and educate yourself on best practices surrounding your project.

If you bypass the interview process, you miss the opportunity to evaluate different approaches, pricing, and expertise. This can result in overpaying or hiring someone whose skills and vision do not align with your needs.

Neglecting to research the processes and steps involved can also leave you vulnerable. Not only does it make it more difficult to ask the right questions, but you also risk hiring unqualified professionals or settling for subpar work.

What To Do Instead:

Educate Yourself — Read up or watch YouTube videos to gain a better understanding of best practices surrounding your project.

Interview Multiple Contractors — Search for and interview at least three contractors who specialize in the type of work you need.

Ask Specific Questions — Inquire about the processes and materials each candidate will utilize.

Seek Recommendations — Get referrals from trusted sources like friends, neighbors, and real estate professionals. We’d be happy to share a list of referrals!

2. CHOOSING BASED SOLELY ON PRICE

Once you’ve interviewed candidates and reviewed their proposals, it’s time to choose your favorite. But don’t make the mistake of rushing to the lowest bid.

While it’s natural to want to save money, selecting a contractor based entirely on price can be a costly mistake. Extremely low bids may indicate cut corners, subpar materials, or hidden costs that will surface later.

According to the National Association of the Remodeling Industry, when evaluating bids, make sure you’re comparing “apples” to “apples” and considering factors like quality, timeline, and scope.² Are they fully licensed and insured? How long have they been in business? Do they warranty their work?

What To Do Instead:

 Consider Overall Value — In addition to price, look at experience, reputation, and quality of work.

Ask for Detailed Breakdowns — Understand what’s included and what’s not in each bid.

Be Wary of Low Bids – Bids that are significantly lower than others may be too good to be true.

Invest in Quality — Remember that quality work comes at a fair price, and investing in a reputable contractor can save you money in the long run by avoiding costly mistakes or repairs.

3. NEGLECTING TO CONFIRM CREDENTIALS & INSURANCE

When you’ve established a good rapport with a contractor, it’s natural to want to believe the best in them. But neglecting to check references and verify licensing and insurance could come back to haunt you.³

Hiring an untrained or unlicensed contractor puts you at risk for safety and code violations, not to mention shoddy workmanship. Without proper insurance, you could be left footing the bill for costly repairs, legal issues, or even medical bills if someone gets hurt on the job.⁴

Skipping out on a reference check can be equally problematic. It’s your best opportunity to ensure that their promises and your expectations line up with reality.

What To Do Instead:

Verify Licensing and Insurance — Confirm that the contractor is licensed according to local requirements and verify insurance, including general liability and workers’ compensation coverage.

Check Reviews — Read online reviews and confirm that the business is in good standing with the Better Business Bureau and other relevant trade groups.

Call References — When contacting references, ask questions and request to see photos of the contractor’s completed projects.

Visit Job Sites — If possible, visit a current job site to observe the contractor’s work in progress and interaction with clients.

4. PROCEEDING WITHOUT A WRITTEN AGREEMENT

A handshake deal might seem friendly and straightforward, but it’s a recipe for misunderstandings and potential legal issues. Verbal agreements are difficult to enforce and leave room for miscommunication about project scope, timelines, and costs.⁵

Instead, you should have a signed contract in place before any work begins.3 Paperwork can be tedious, but don’t skip the important step of carefully reading over your contract, asking questions, and pushing back on any terms that make you uncomfortable.

Don’t forget to ask for payment receipts and document any change orders or issues that arise throughout the project, as well.

What To Do instead:

 Insist on a Written Contract — Outline all aspects, including scope, materials, timeline, payment schedule, warranty information, and a process for handling change orders.

Understand and Agree — Don’t sign anything until you fully understand and agree to all terms.

Keep Documentation — Once you’ve made your final payment, request a lien waiver or receipt marked “Paid in Full” to keep on file for legal and tax purposes.⁶

5. PAYING TOO MUCH UPFRONT

Another common misstep is paying a large sum upfront or the full cost of the project before the work is completed. This can leave you vulnerable if the contractor fails to complete the work or disappears with your money.

According to the home services platform Angi, deposits typically range between 10% and 33% of the total project cost.⁷ The remaining payments should be tied to progress milestones outlined in your contract.

Construction attorneys caution against paying a greater share of the project cost than the percentage of the work that’s been completed.³ If you end up dissatisfied with the outcome, you’ll have much less leverage if you’ve already paid.

What To Do Instead:

Be Cautious — Avoid contractors who demand large upfront payments or cash-only deals.

Establish a Payment Schedule — Tie payments to project milestones and stick to them.

Pay Only Upon Completion — Never pay in full until the project is completed to your satisfaction and all required inspections have been passed.

6. FAILING TO GET NECESSARY PERMITS

Skipping the permit process might seem like a way to save time and money, but it can lead to serious consequences. Without the proper permits, you risk running afoul of local building codes and regulations, which could result in fines, forced removal of work, or even legal action.8

Additionally, unpermitted work might compromise the safety and structural integrity of your home, potentially leading to hazardous conditions or diminished resale potential. Homeowners may also find themselves without recourse if issues arise later, as insurance companies often exclude coverage for unpermitted renovations.⁸

If your community has a homeowners association (HOA), don’t forget to check their requirements, as well. You may need prior approval to make modifications to your home or yard. HOAs have the power to enforce these restrictions with fines, and they can even put a lien on your home—so don’t skip this important step.⁹

What To Do Instead:

Discuss Permits — Talk about permits and HOA requirements with your contractor before work begins.

Include Permits in the Contract — Ensure that obtaining necessary permits and approvals is part of your contract.

Verify Inspections — Make sure all required inspections are completed during the project.

Keep Records — Keep copies of all permits, HOA approvals, and inspection reports for your records.

7. IGNORING RED FLAGS AFTER THE PROJECT HAS STARTED

Sometimes a contractor can check all the right boxes—until the work begins. Unfortunately, red flags that are spotted mid-project can be especially challenging to address.

If you’ve already paid a substantial amount or had a portion of your home demolished, you may feel trapped in a bad situation. However, if there are major problems that the contractor is unwilling to address, ignoring them can make things exponentially worse.

Don’t be afraid to seek legal or professional advice if issues persist. Taking immediate, informed, and decisive action is crucial to safeguarding your investment and ensuring the project’s ultimate success.¹⁰

What To Do Instead:

Review Your Contract — Make sure you thoroughly understand your rights and the agreed-upon terms.

Document Issues — Keep detailed records, including dates, descriptions of problems, photographs of subpar work or materials, and any communications with the contractor.

Communicate Professionally — Arrange a meeting to discuss your concerns, ensuring you remain calm and professional while clearly expressing your expectations.

Request a Resolution Plan — Ask for a plan to address the issues, set a timeline for resolution, and put everything in writing to ensure you’re both on the same page.

Seek Advice — If the contractor is uncooperative or dismissive, consider seeking advice from a legal professional. You could also contact your local licensing board or consumer protection agency for guidance.

BOTTOMLINE

Hiring the right contractor is crucial to the success of your home improvement project. By avoiding these common mistakes, you can significantly increase your chances of a smooth and successful renovation experience.

Remember, taking the time to thoroughly vet contractors, communicate clearly, and plan carefully will pay off in the long run. Your home is likely your most significant investment, and it deserves the care and attention that comes with making informed, thoughtful decisions about who works on it.

If you’d like help finding a contractor or want to know how planned improvements could impact your home’s resale potential, reach out for a free consultation!

The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:
1. USA Today –
https://www.usatoday.com/money/homefront/moving/home-renovation-statistics/
2. National Association of the Remodeling Industry –
https://remodelingdoneright.nari.org/Homeowner-Resources/Questions-to-ask/How-to-select-a-remodeler
3. The Washington Post –
https://www.washingtonpost.com/home/2024/07/08/how-to-find-good-honest-contractor/
4. MarketWatch –
https://www.marketwatch.com/guides/insurance-services/home-insurance-during-renovations/
5. LegalZoom –
https://www.legalzoom.com/articles/oral-contracts-do-they-carry-any-weight
6. Better Business Bureau –
https://www.bbb.org/all/home-improvement/your-home-improvement-contract
7. Angi –
https://www.angi.com/articles/how-much-should-i-pay-general-contractor-prior-starting-job.htm
8. Bob Vila –
https://www.bobvila.com/articles/remodel-without-permit/
9. Bankrate –
https://www.bankrate.com/real-estate/hoa-homeowners-association-rules/
10. Angi –
https://www.angi.com/articles/how-complain-contractors-effectively.htm