Research Market-Rate Rents With Zillow

“Renters make up 70 percent of all people who move in a given year, but up until now there hasn’t been a way for them to figure out how much they should be paying for rent,” writes Zillow CEO Spencer Raskoff.

“In fact, according to a survey we recently fielded with Ipsos, nearly two-thirds of current renters didn’t do ANY research into fair rent prices before signing their lease.”

Raskoff also notes that rent Zestimates aren’t a one-way street–they’ll be helpful for landlords who are interested in setting market rates, and for homeowners looking to rent their property, rather than sell in a down market.

The algorithm is proprietary, but it’s probably safe to say it’s built off Zillow’s home-value Zestimates. So how accurate are those? Zillow is happy to ‘fess up that in some ways its Zestimates are a trailing indicator. They “correct” Zestimates as properties sell, so they have created a table that details how accurate Zestimates are, by area.

For Seattle, they report 4-star performance, with median error of 9.8 percent. (Notice that their rental Zestimate, pictured above, just happens to be 9 percent off the asking rental rate.) But they break the numbers down further. 28 percent of Seattle Zestimates are accurate within five percent, 51 percent to within 10 percent. And a full 75 percent see sale prices within 20 percent.

For any given property, this leaves a significant amount of wiggle room in the price, but it probably does help to establish outliers. Realtors have objected to Zillow’s Zestimates–fairly, I think, if you look into psychological research on anchoring with pricing–but it’s also true that they’re setting a low bar for realtors to beat. Anyone in Seattle whose estimates are within 20 percent of the sales price 76 percent of the time has beaten the Zillow machine.