Online home valuation programs and why they are usually inaccurate

The online home valuation websites are in high demand for spot checking a price. They are fast, easy, and free. 
Online home valuation graphic: same House Different ValuationsEveryone wants an easy answer, but often the easy answers aren’t all that accurate.

Online home valuation confusion

Sometimes our clients present us with “THE VALUE” of property per one of these free online home valuation websites sites and in some cases, they challenge us to disprove it (Zillow says it, or some other site, 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.

The same is true 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.

Often the best way to respond is to show many of the online valuations and not just the one the client is focused on (often that’s either Zillow or Redfin, but some are attached so some other site’s numbers.

What might surprise a lot of people is the huge discrepancy in values given.

Sample auto comp values online

A good exercise is picking a home that you know fairly well and then seeing what the online home valuation tools say for each one. I picked a home that I know and ran the address through several websites that provide automatic pricing info. Here are the results, from low to high:

Not included in online home valuation study:
Eppraisal $2,072,000 (too high)

Included in the online home valuation study:
Chase $1,721,800
Collateral Analytics (via Realtor.com)  $1,671,000
Redfin $1,644,906
CoreLogic (via Realtor.com) $1,631,300
NAR RPR $1,617,440 (subscription only for Realtors)
Zillow $1,580,300
Quantarium (via Realtor.com) $1,566,759
Bank of America $1,504,391

(Please note: the Trulia home value estimator is the same as Zillow’s Zestimate because Zillow owns Trulia.)

From top to bottom, the amount varies by $217,409! That’s a 14% gap between top and bottom. Had we included Eppraisal, it would have been even crazier.

How can the online home valuations disagree so much?

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Which real estate market data is the most helpful to you?

Los Gatos real estate market trends

Los Gatos real estate market trends

Whether you are buying or selling a home in Silicon Valley, the real estate market data is super important to your sense of realty values.  This is one area where it”s expensive to get it wrong when pricing a home to sell or deciding on a price for a bid to buy.

How can you get it right?

For a comparable or competitle market analysis:

In general, real estate professionals try to narrow the data to similar properties when doing a market analysis:

  • don’t compare apartment style condos with PUD townhouses or single family homes
  • don’t compare properties from different zip codes, school districts, or with more than 20% difference in home size
  • ideally, DO pick properties within 1 mile, within 10% – 15% plus or minus the size of the home and the land
  • ideally, try to get homes similar in age or condition
  • make sure the comps are current – 90 days is best, but if you have to go back 11 months or so, make sure that you adjust for the market changes since then
  • if at all possible, compare similar type homes: golf properties with golf properties, view homes with view homes, equestrian estates with equestrian estates
  • also if possible, use the same zip code as sometimes this also has an impact

General market trends relevant to the property in question

To get a sense of the market generally (rather than just the comps for one particular piece of land or house), it is somewhat the same in terms of criteria, but not so specific.  I’ll often use just a few criteria to see how the “overall” market is doing – often the approximate price point, school district, and zip code will do the trick.

For example, if I’m looking in east Los Gatos (Union School District / Campbell Union High School District) for a house worth appx $1,750,000, I might check market data such as the absorption rate or the days on market for homes matching just this criteria:

  • Los Gatos / 95032
  • High School District 473 (Campbell Union HSD)
  • list price  OR sale price for solds the last 90 days $1,500,000 – $2,000,000
  • Perhaps similar square footage plus or minus 10-20%

This is a small enough segment of the market that I’ll have a pretty good sense of what’s happening there pretty quickly.

Case study

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