Zillow's Zestimate Algorithm Boosts Efficiency in Residential Real Estate, Especially for Lower-Income Neighborhoods

New researchpublishedinMarketing Sciencefinds that while Zillow's widely used "Zestimate" home-valuation algorithm boosts efficiency in the residential real estate sector, it also significantly benefits lower-income neighborhoods, even in situations where the algorithms are sometimes less accurate in those areas. The study, "Unequal Impact of Zestimate on the Housing Market," is authored by Runshan Fu of New York University; Yan Huang of Carnegie Mellon University; Nitin Mehta of the University of Toronto; Param Vir Singh of Carnegie Mellon University; and Kannan Srinivasan of Carnegie Mellon University. The researchers used detailed Zillow and home-sales data from 4,027 properties across 140 neighborhoods in Pittsburgh, where the researchers built a structural model of the housing market. They sought to measure how Zestimate affects listing decisions, selling prices, time on market, buyer surplus and seller profit. In the end, they found that because the Zestimate reduces uncertainty surrounding actual property values, it enables sellers to reduce the likelihood of selling their properties below market value. It also helps buyers to match with the homes they truly value, leading to purchases that better fit their specific needs and preferences. This has the effect of increasing the extra value (buyer surplus) by 5.94%, and seller profit by 4.36% on average.