Why online home value estimators aren’t reliable
Whether you’re looking to buy, sell or refinance a home or are simply curious about its value, online home value estimators are popular tools. Also known as automated valuation models (AVMs), they include services such as Zillow Zestimate and Redfin Estimate. AVMs work by using available data about a property to calculate a home value estimate with little or no human input.
While AVMs are typically free and instant, that convenience can come at the cost of accuracy. For example, while Zillow claims its estimates are within 5% of a property’s final sale price 82% of the time, that number plummets to just 39% for off-market homes that later sell. The shortcomings of AVMs have led to some high-profile failures, such as when Zillow’s former CEO famously sold his home for 40% less than its Zestimate value.
Why, in this high-tech age, can AVM estimates still miss the mark by so much? Here are three major reasons why these services shouldn’t be relied on for accurate estimates.
The source data can be wrong, outdated or missing
AVMs use data from public records, previous home sales and homeowners themselves to calculate home value estimates. However, those calculations are only as good as the data itself. An incorrect square footage measurement, bedroom count, tax assessment or other data point can throw off the estimate of the home and even surrounding homes as well. Some AVMs may even fail to include important sources of information, such as the MLS (multiple listing service) databases used by the real estate industry.
Home features and upgrades may not be recognized
No database or algorithm can recognize everything that adds value to a home. The amount of natural light, the interior finishes and the window views are all features that can affect what a home is worth but may not be reflected in an AVM estimate. Even home improvements could be left out of the equation unless they are considered in the assessments of local tax authorities or other sources that feed into the AVM calculation.
Limited homes-sales data can throw off estimates
AVM estimates are at their best when used on a home that is currently for sale in a community with a high proportion of recent home sales. This is because the home itself will have ample up-to-date information available on its own for-sale listing, and there will be plenty of recent comparable sales to utilize when estimating a value. However, if the home last sold many years ago or the community rarely sees homes change owners, an AVM will struggle without fresh data for its estimate.
While online home value estimators can provide a free ballpark number, they shouldn’t be relied on for an accurate home value estimate. This is especially true when making important decisions such as listing a home for sale, making an offer to buy a property or checking if you’re eligible to refinance a home. To get a more accurate estimate, talk with a real estate agent or home appraiser in your area.