One big challenge we have in today’s Silicon Valley real estate market that we didn’t have 20 years ago is the proliferation of misinformation on real estate or home values due to the prevalence and popularity of online home valuation websites. Everyone wants an easy answer, but often the easy answers aren’t all that accurate.
Sometimes my clients present me with “THE VALUE” of property per one of these online sites and in some cases, they challenge me to disprove it (Zillow says it, so it must be right, goes the thinking). If they want to buy a house which is listed for more than the auto-comped value, it may cause some emotional anguish. And if they want to buy one which is listed for less, they may feel a little giddy – unless multiple offers are looming. Same with home sellers. They agonize when Zillow, Trulia or some other big name site places a worth on their property which is less than what they feel it should be. (It is not uncommon for most home owners – including real estate agents, by the way – to feel that their home is really going to sell for 5-10% more than is likely. But this is an additional problem.)
Over the last couple of days, I used various web sites (Eppraisal, Trulia, Zillow, Chase, SmartZip, DataQuick, HomePriceReview), some of which you may have heard of and perhaps others you haven’t, to spot check the value of a particular house in San Jose’s Cambrian area (95124, Cambrian Gardens in the Little Branham area). Most of these provide the number or range without an account or email address. A couple of them came from other sources (SmartZip and Dataquick) listed, so is second hand info in those cases. Also, some of these which do require your contact info will provide what you give to a real estate agent who will then want to follow up with you (HomePriceReview, for one).
What might surprise a lot of people is the huge discrepancy in values given.
In our sample of the San Jose house above, the estimated value ranges from $624,239 all the way to $888,000. That’s a whopping $263,761 difference, which is more than a typical down payment, well more than 30%! Zillow’s stated goal is right in line with this spread, though. Zillow says it targets being within 20% of the correct value 80% of the time.
How can they disagree so much?
- The location criteria used can be bad – often a radius of a mile or two is used, and this can push the “comps” into different zip codes, cities or towns, schools districts etc.
- Frequently the desirability and ultimate sales price of a property can go up or down based on micro locations, such as being east or west, north or south of a particular road, school, etc. The auto comp valuation sites do not know this.
- Remodeling and updates are often not know and not factored in. One of these sites references the last update (assuming they are pulling the permit files to determine this) but it stated that our sample home hadn’t ever been updated when in fact it’s had a lot of remodeling with permits and finals.
- Further, some remodeling will actually lower the probable buyer’s value (even if it was expensive) since what the current owners found to be a wonderful improvement is something that most any other home owner would have to pay to rip out and redo. So even if the permits and finals were factored in, it may not help.
- The time lag can be too long. Right now home values are appreciating pretty fast. If a comp used is more than even 2-3 months old, it will be too low. (In other markets, it might be too high.)
- These sites base their numbers on price per square footage, but there’s a lot more to an accurate pricing than just that! Additions, for instance, usually will not be as significant to the pricing as original square footage. (Think of the ugly additions you may have seen, such as – forgive me – the unappealing “box on top of the garage” expansion.)
Want to know the true market value of your home in today’s market? Either hire an appraiser (who will probably not factor in the pending sales or active competition), or speak with a Realtor who’s full time and active in your area and have him or her visit your home personally and learn about your property. A comparative or competitive market analysis should be able to get you to within a very few percent of the sales price. There will still be a range of value because the sales price will change based on the terms of the offer accepted and the exact timing of the sale.