This post looks at and conducts a standard hypothesis test on requested and estimated rents.
Question: The table below has data on requested and
estimated rents on home in Venice California.
Requested and Estimated
Rents for 3+ bed room houses in Venice California


Requested Rent

Zillow
Rent
estimate

Difference Rent 
Estimate

% Difference


1

3798

4000

202

5.3%

2

4550

5100

550

12.1%

3

4600

4700

100

2.2%

4

4895

4600

295

6.0%

5

5395

5300

95

1.8%

6

5900

4600

1300

22.0%

7

6500

5100

1400

21.5%

8

6800

5000

1800

26.5%

9

6500

6500

0

0.0%

10

6500

7100

600

9.2%

11

6995

7900

905

12.9%

12

7750

6000

1750

22.6%

13

7950

6900

1050

13.2%

14

7950

4600

3350

42.1%

15

8000

4800

3200

40.0%

16

8000

5200

2800

35.0%

17

8500

6400

2100

24.7%

18

8500

8500

0

0.0%

19

11500

6900

4600

40.0%

20

12500

12000

500

4.0%

21

12500

6600

5900

47.2%

22

15000

7600

7400

49.3%

Source of data is
Observed on 12/18/14.
Based on this data compare requested rents to Zillow
estimated rents.
Is the difference between requested and estimated rents
statistically significant?
What does this result suggest about the use of Zillow rent estimates
on real estate decisions?
Statistical Analysis:
Requested rents on 3bed room houses are
substantially larger than Zillow rent estimates in this sample.
Descriptive Statistics on
Requested and Estimated Rents in Venice CA


Requested Rent

Zillow
Rent
Estimate

Difference Rent 
Estimate

% Difference


Mean

$7,754

$6,155

$1,599

16.1%

Median

$7,373

$5,650

$1,175

17.4%

Standard Deviation

$2,863

$1,803

$2,194

20.2%

Skew

$1

$2

$1

17.5%

Min

$3,798

$4,000

$905

12.9%

Q1

$5,774

$4,775

$25

0.5%

Q3

$8,500

$6,950

$2,900

36.3%

Max

$15,000

$12,000

$7,400

49.3%

3bed Room + Homes Venice Ca December 18 2104
The average percentage difference between the requested rent
and the Zillow rent estimate is 16.1 percentage points.
The median difference is 17.4 percentage points
The range is from 12.9 percent to 49.3 percent.
The difference in mean requested and Zillow rent estimates
is statistically significant. Below are
the results of the paired ttest on the difference in the mean difference and
the mean percentage difference.
Hypothesis Test Results
for Difference in Requested and Estimated Rents


Z score


Paired Difference for
Differences in $

16.0

Paired Percentage
Differences

17.5

Ramifications for
real estate decisions:
A person who places Zillow rent estimates into a rent/buy
decision model may choose to rent.
However, this person may change his or her mind once shopping occurs if
homeowners don’t reduce their requested rent.
The rent a house goes for is a major determinant of the
house’s value. A realtor who uses the Zillow
rent estimate to figure out what a house is worth will undervalue the house.
The likely rent is often the primary factor impacting
whether a owner will list and sell a house or rent it out. Realtors who rely on Zillow rent estimates
are understating potential rental income.
This may persuade some people to list and sell rather than rent out.
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