Around 2005, I was still a real estate appraiser. There was significant talk at the time of going with automated valuation models and getting rid of appraisers entirely. In fact, some banks used AVM's to underwrite loans. Not that this was the reason for the foreclosure crisis, but needless to say, skewed valuations didn't help.
No matter the AVM, there is no way that it can provide an accurate estimate on a consistent basis. Why?
#1) No AVM cannot assess the condition, quality or upgrades in your home. You can have two homes on the same street, with similar lots and identical floorplans. One could sell for thousands more due to upgrades or difference in condition. There is no way for an automated valuation model to interpret that.
#2) AVM's rely on public sale records. Non-arm's length transactions, such as a sale from one family member to another (at a discount), or a foreclosure, or a short sale, or an estate sale, etc. are factored into the value estimate often with the same weight as the nice home that is in good condition.
#3) AVM's rely on public information about the physical characteristics of you home. This means tax records, and unfortunately, tax records are often incorrect. Square footage, number of bedrooms, bathrooms, whether you have finished basement, can all be incorrect.
#4) AVM's do very poorly in a rapidly changing market. AVM's focus on historical sales, and those sales must have closed before they affect the valuation. In addition, it could take some sales months to be properly recorded and applied to the valuation calculation.
So, the next time you are looking at your Zestimate, just take it with a grain of salt. It should give you an indication of what the market is doing if you track it over time.
And, if you are relying on a Zestimate to make any real estate decision, talk to a good agent (such as myself), to see if the Zestimate is in line with reality. Agents are able to look at a home through a buyer's eyes. They can look at closed sales, but also what the competition on the market is currently and what is under contract that hasn't closed.
Don't hesitate to call us at 678-992-3817, if you have any questions about Zestimates specifically or the value of your home.