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Online Home Values Are Like Rolling The Dice

Donny Piwowarski

In the heavily competitive real estate market, an agent has to work hard to find ways to differentiate himself from the competition...

In the heavily competitive real estate market, an agent has to work hard to find ways to differentiate himself from the competition...

Feb 6 4 minutes read

Did I tell you that I love to play craps? The excitement of throwing the dice, hitting the right numbers, everyone giving you high 5's when you throw a winning number. Throw a 7 and you're done. No more high 5's.  This is kind of what I feel with online home estimators like It's like rolling the dice and not knowing what number you're going to get AND is it accurate?

When Zillow burst on the scene, buyers and sellers flocked online to get information once reserved just for licensed real estate agents. While it’s a great place to browse listings, relying on the Zestimate or other online estimation for the valuation of your home might give you a value which is off by thousands of dollars or more. So how does Zillow, Trulia and other online sites create their estimates? Are they accurate?

Zillow and other similar sites use an automated valuation model (AVM) to determine a property’s value. An AVM uses the basic property information, such a square footage and number of bedrooms, to get a basis for its value. The system then accounts for publically available data such as price trends and local market information to arrive at its number. Zillow uses a complex proprietary equation which analyzes past sales to estimate your home’s worth. They access public data which only shows a change of title. They have no way to distinguish between a short sale, foreclosure and family transfer (which could be significantly different from a market sale).

Because it’s an automated system it lacks the ability to factor in the unique characteristics of your home. For instance, do you have a spectacular view that the house across the street does not? The Zestimate does not include that extra feature in its value. What about your remodeled kitchen or spectacular outdoor pool and spa. There is any number of reasons that your home is in a different condition than the comparable properties Zillow uses to compare it with.

Automated estimates cannot account for areas where the real estate market includes many custom homes as well. It’s very difficult for an automated system to account for the unique properties of a custom home. Mere square footage or lot size is inadequate to really compare a Tuscan Villa with a Modern Desert Estate. Varying building materials, architectural style, lot characteristics and views can create thousands of difference in property value. The community itself and its amenities must also be considered.

It’s natural to want to do some research before you reach out to a real estate professional. The Internet offers a variety of ways to do this. But if you are seriously considering a home sale of your property and need a true value of your property, a licensed agent is the only way to get accurate information. Zillow’s Zestimate might be a ballpark figure you can use to get a feel for the value, but with some estimates off by thousands of dollars, it really isn’t a reliable tool, even for a ballpark.

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