Top 6 Reasons Why Your Zillow Home Value Is Dropping

If you own a house and have been keeping tabs on it via Zillow, then you may have noticed that your home's estimated worth (or Zestimate) on Zillow fluctuates. While it can be alarming to see your home's value dropping on Zillow, a decrease in the Zestimate can happen for many reasons that may or may not reflect your home's actual market value — such as a change in Zillow's algorithm, missing or faulty data, or shifts in the market.

The best way to figure out your home's true fair market value without hiring an appraiser is to get a comparative market analysis (CMA) from a professional realtor in your area. Need to find a realtor? Clever Real Estate can match you with the best agents in your neighborhood, who have deep experience pricing and selling homes just like yours. Take a short quiz to find an agent now.

If you're just looking for a ballpark idea of your home's worth, we recommend checking multiple online home value estimators. This will help you rule out any sites that are relying on outdated or faulty information and give you a better idea of your home's current value.

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6 reasons your Zillow estimate may have dropped

1. The algorithm changed
2. You listed your home for sale
3. Zillow is missing facts about your house
4. You set a listing price
5. Neighboring home sales are affecting Zillow's data
6. The market shifted

1. The Zillow algorithm changed

Zillow's Zestimate values homes based on an algorithm, and Zillow makes adjustments to the Zestimate algorithm based on available data, new technologies, and other factors. When the algorithm changes, your estimate will likely change too.

To determine a home's value, the algorithm uses that home's characteristics (such as the square footage and number of bedrooms and bathrooms), on-market data (such as the home's current listing price, days on market, and comparable homes), off-market data (such as assessor and tax records), and market trends.[1]

Zillow changes its algorithm frequently, with consistent small updates and occasional major updates. Also, the algorithm refreshes every day to use the latest data, which may contribute to the difference in value you see each time you check your Zestimate.

Andrew Fortune, broker-owner at Great Colorado Homes, notes that "The Zestimate is usually accurate within $15,000 for most homes sold in large neighborhoods with many relevant comparable properties. The more consistent the data a model has, the more accurate it is."

However, algorithms can't always account for every variable of every home for sale. "These estimates start to break down when looking at custom luxury homes, homes on acreage, and remodeled properties," Fortune adds. "Some estimates can be off by more than 20%."

2. You listed the home for sale

When you list the home for sale, Zillow's algorithm starts incorporating listing data to estimate your home value. Listing data isn’t available for off-market homes, which is why this data affects your estimate only after you list the home for sale.

That said, if the home has been listed for sale for a year or longer, then the Zestimate will likely transition back to a heavier weighting of off-market data for that home.

3. Zillow is missing some facts about your house

If Zillow doesn’t have all the information about your home, your home value estimate might be lower (or higher) than it should be. You can try to improve your estimate by taking these steps:

• Accurately describe the features of your home
• Check off all the amenities in your Zillow profile
• Report any updates, like additions or remodels, to a tax assessor (Zillow can’t evaluate unreported updates)

Elena Novak, a real estate analyst at PropertyChecker.com, remembers a time when one of her clients "was sure her Zestimate was dead-on," but the home value didn't account for the home's issues. "It hadn’t been touched since the '90s, and the backyard sloped into a drainage ditch. The AVM had pulled comps from beautifully renovated homes nearby."

To get the home sold quickly, Novak priced it under the Zestimate and had three offers on the property in less than a week. "The market saw what the algorithm couldn’t," she says.

4. You set a list price

When you set a listing price for your home, you may see a change in your Zillow estimate. And if you raise or lower that listing price, the estimate may adjust again.

Previously, Zillow has said that its Zestimates are independent of list price[1] because it wants to track the market, not drive it. However, Zillow’s algorithm sometimes considers the list price as a valuable signal, particularly when other data isn’t available, and adjusts the Zestimate accordingly.

5. Home sales in your area are affecting the data

Zillow relies on data from neighboring homes to calculate your home value. If homes in your area are selling for under market value, that will affect your estimated home value.

Zillow’s algorithm creates your estimate in part by pulling your home’s square footage from tax records, then pulling data from recent home sales in your area. This apples-to-apples comparison doesn’t consider factors like building materials, home style, improvements, and higher-end appliances that can increase your home value.

"In newer subdivisions where homes look and feel pretty similar, those estimates can be surprisingly close," Novak explains. "But once you’re in an older neighborhood or anywhere with a mix of styles or conditions, they can miss the mark by 10% or more."

» MORE: How Does Your Neighborhood Affect Your Home's Value?

6. The market shifted

Zillow may adjust your home value estimate according to the market. In general, homes are worth more during a seller’s market than during a buyer’s market. If you checked your Zestimate during a hot seller’s market, then checked it again when the market turned cool, your home value may have taken a hit.

Keep in mind: Your Zestimate isn’t always accurate, and your home value depends on your unique local market conditions.

Pete Everling from Utopia Management San Diego notes that because home valuation algorithms are pulling from public data, they might not be able to immediately reflect market shifts. "If there’s a surge in demand or inventory tightens up quickly, like we’ve seen happen mid-year during buying frenzies, the AVMs don’t always catch up right away," he explains.

"They rely on past sales data, so they're usually lagging indicators. That’s why pairing one of these estimates with a current CMA from a local agent gives a much clearer and more strategic view of where pricing should land in real time," Everling adds.

Get the most accurate home value estimate

If you’re worried about a Zestimate drop and want a more precise estimate of your home’s value, your best resource is to talk to a local real estate agent.

An experienced local agent will perform a comparative market analysis (CMA), which is the most accurate way to determine your home's current market value.

To complete a CMA, a realtor studies recent sales prices of houses that are comparable to your home. They take into account things like size, location, condition, and features. They also analyze sales data from the past few years, looking for trends that could impact prices.

This expert analysis can give you confidence in pricing your home competitively and maximizing your profit.

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