Online Home Value Estimates Are NOT Appraisals
September 22nd 2017
Where are these home value estimates coming from?
Plenty of homeowners have visited online home valuation sites such as Zillow, Trulia, and others only to be shocked at the published value of their homes. Most sellers are pleased when the values appear higher than they expected, but many online valuations come in far lower. So should you use these values to price your home for sale?
Estimating a home’s market value is far from an exact science. What these sites attempt to do is provide greater transparency to homebuyers and sellers by making data derived from public records more accessible. They publish what you paid for your home and how much you pay in taxes. Many have satellite views so accurate they can spot your cat laying on the front walk.
But few consumers realize that two homes right next door to each other could have been purchased at different times and have vastly different tax bases which in turn skews values. The property tax base resets for each home every time it’s sold. Then the taxes can go higher every year, remain the same, or go down according to market conditions. Most communities impose ceilings so that your taxes don’t escalate to an unaffordable level in a single year.
Then how do these sites come up with valuations? All property is registered with the city and county for property taxing purposes. Home valuation sites contract with major title companies such as First American to obtain county tax roll data. They also find ways to become members of local multiple listing services, which are either subsidiaries of real estate associations or owned by local real estate brokers. That way, they have access to current listing data and recent solds.
Between tax roll data and listing data, home valuation sites apply their own secret sauce, or algorithm to come up with “zestimates” or approximate values of what homes in a given area are worth. Sometimes the results are spot on, but they can also be inaccurate. First, transaction data has to be recorded with the county, which could take weeks. But, what alters the algorithm most is that properties not currently on the market are included in the data. These homes have not been tested by the current marketplace and cannot possibly contribute to recent market values.
In addition, the algorithms may include whether or not a home has been updated, but there’s no way to quantify subjective information such as how well the home is maintained, curb appeal, interior design, window and yard views, and neighborhood popularity. For these reasons, online valuations have varying levels of accuracies and should be used only as one of many tools to estimate a home’s value. Here are some of the most popular online home valuation websites:
• Realtor.com®: Realtor.com® uses tax assessment records, recent sale prices of comparable properties, and other factors to estimate home values. This estimate is free and publicly available.
• Redfin: Redfin is a web-based real estate brokerage that gives the Redfin estimate for the property, which is based on market, neighborhood, and home specific data, including MLS data on recently sold homes. Redfin cites that their estimates for properties currently on the market are more accurate than estimates for off-market properties. This estimate is free and publicly available.
• Homes.com: Homes.com’s estimate mainly uses public records. They test and benchmark the accuracy of their estimates. This estimate is free and publicly available.
• Zillow: Zillow has the Zestimate, which is their home value estimate for properties and is computed using public and user-submitted data. Their estimates have different accuracy levels depending on the data of the property and location. This estimate is free and publicly available.
Your best approach to choosing a listing price is to ask your real estate professional for a comparative market analysis, or CMA. He or she can show you the most recent listing asking prices and sold comparables in your neighborhood. These results are accurate up to the hour in most cases. Realtor.com updates listings from MLSs every half hour. If your home is estimated for far less on a home valuation site than current comparables, be prepared to argue pricing with buyers who take these numbers as gospel. If they have a real estate agent representing them, the agent can confirm the comparables you show them to help them understand the market a little better. By the same token, don’t expect to get more for your home if home valuation sites put your home in a higher price bracket. Recent comparables tell the true story of the current market as long as buyers and sellers are using the same search parameters. Remember, a set of comparables is only a guide to pricing your home, so you can sell your home quickly and for the most money possible in the current market.