Is horrible. There is really no other way to put it. Zillow's algorithm is about as smart as a 5 year old - if you give them a list of houses that are all identical, and sold for the same price, they'll give you an accurate value. Otherwise, it will be gibberish. This is why when they recently announced that they will buy your house based on their Zestimate (still a dumb name) they disclosed in the fine print that they will also require an appraisal... Zillow doesn't trust their Zestimate, and with VERY good reason.
Zillow claims to have accurate home valuation tools (verbiage that they have been sued over), when you look at the numbers, you see is really more a shell game, and its getting worse.
This is the story of the "Shotgun House" from HGTV's Chip and Joanne Gaines. In this case, they were consistent with that strategy. In 2019, the data on their website told a very different story than today, then they cooked the books to make it look like they were reasonable all along. This is what the graph looked like in 2019...
And here is 2021... see any difference.
Originally the data revealed that Zillow grossly over estimated the land value by 250%. Then when the county assessed the home at approximately the cost of the purchase plus improvements, it simply mirrored the assessment (assessments are not appraisals and are not good indicators of market value, but they have more credibility than Zillow). Then, when the house was listed for $950,000, the Zestimate shot up to $750,000, before retreating slowly over a year to a level 5-8% higher than before the listing.
However, NOW, all that errant predicting is gone. This is how Zillow substantiates its claims. My thanks to the Sacramento Appraisal Blog for originally drawing attention to this, and saving the evidence. His blog is insightful on how the Zillow algorithm "works," but I'll summarise here, first their most recent claims:
Zillow claims that their off-market median error rate is 7.5%.
Zillow claims that their on-market median error rate is 1.9%.
First, what is a "median error rate?" This simply means that 50% of the time, Zillow is wrong by more than that percentage, and 50% of the time it is right by at least that percentage. See the problem? 50% of the time, they are wrong by more than 7.5%... that's horrible. Any appraiser would lose their license within a week with those error rates. Frankly, the on-market number isn't much better, but here's where there is cheating in those numbers.
Zillow uses the most recent on market data to establish their "Zestimate," so essentially, Zillow is only as correct as the listing agent (who I would trust 100% more than Zillow).
This page - shows just how bad the algorithm really is. Even in on-market sales, the Zestimate is wrong by more than 5% in 10-20% of cases. In off-market sales this becomes comical with the error being more than 20% nearly 20% of the time.
As a real estate appraiser, I'm incredibly confident in the safety of my job in terms of Zillow.