Internet Home Value Calculators - How Accurate Are They?

By
Real Estate Agent with GreatWest Realty DRE# 00827565
http://actvra.in/ncn

Occasionally, I will hear or read comments from homebuyers, homeowners, sellers and real estate professionals, about the value and use of online housing calculators that provide estimates of property value.

Earlier this week, I came across an interesting article in the Yahoo Finance section titled, “The Fuzzy Math of Home Values,” which delved deeply into this topic.

 

The article was written by Alyssa Abkowitz, of Wall Street Journal’s SmartMoney.  In one case vignette, Abkowitz showcased the dilemma of a Greater Sacramento homeowner.  The homeowner had invested hard work to turn his 6,500 square foot home near Folsom Lake, into an ultimate party pad.  The home boasted a custom wine cellar, game room and a home theater.  There was a wood-burning pizza oven, and searing station outside.  A pool overlooked the lapping waters of Folsom Lake.  BUT as the homeowner was finishing up on his home improvements, and delved into refinancing the $750,000 mortgage, and became startled when according to one popular real estate website, the home value had dropped over $200,000 during a recent seven-month stretch.

The SmartMoney article went on to say, "Another on-line real estate estimating website valued the home at a mere $640,500.  Adding confusion to the picture – a real-life appraiser had valued the house at $1.5 million."

According to SmartMoney Magazine, the calculations behind online estimates are adding confusion to an already tricky housing market.

As increasing numbers of consumers grope for information in this difficult housing arena, they often frequent websites which provide home-evaluation data to help ascertain value. 

A
 personal friend in Boise, Idaho, shared with me that she is getting ready to market her home this coming spring.  She has visited sites like Zillow, Homes.com, and Realtor.com hoping to obtain an approximate value for her dwelling.  She lives in an area of mobile homes placed on city lots.  The vacinity abuts a new development of custom homes selling in the $500,000 range.  She states, the guestimator websites frequently place values on the neighborhood mobile homes, with the custom stick home evaluations - and the neighborhood custom homes at mobile home values. 

 

Yet another of my out-of-state friends is currently marketing their home with fair market list price, but each and every consumer, who visits the  listing on-line, is seeing a zestimate, approximately $75,000 below their list price.
 

According to the SmartMoney article, the on-line companies, which provide their valuation estimators, rely on the use of algorithms.  Because these algorithms often change, the values of homes often change.  According to the SmartMoney article, "this summer Zillow made adjustments that affected all of the 100 million homes in its database, and some home value quotes swung by hundreds of thousands of dollars in as little as a month." 

The SmartMoney article also addressed a special Louisville, Kentucky home, "which according to legend, acted as inspiration for Daisy’s home in The Great Gatsby, and quadrupled in value over 30 days.  While according to Zillow, a Brooklyn, N.Y. townhouse currently listed for $5 million, was valued at a jaw-dropping $31 million in the middle of the real estate crash."

According to the SmartMoney article, "The former owners of the “Gatsby house,” watched Zillow put a $331,000 value on the house in May.  In July it had climbed to $1.5 million.  Zillow claimed the lower estimate reflected errors in its statistical model."  The sellers had to fend off a stream of lowball offers before they ultimately sold their dwelling this autumn.
 

Zillow, Trulia, Homes.com and all their competitors make clear their numbers are only guesstimates.  They present disclaimers about information and material consumers garner from their websites.  However, homeowners don’t always pay attention to the disclaimers. 

 

In the majority of the past 30 years I've been in this business, home evaluation has been an appraiser's job.  Some evaluation can come from the process of a CMA (Comparitive Market Analysis) performed by real estate professionals.  The process involves gathering data on recently sold properties in the vicinity, and comparing them with the home being evaluated or appraised.  Size, condition and characteristics, are components considered.  Unique qualities and added amenities, such as a swimming pool can add value.  Although the evaluation-appraisal process can be as much art as science, it is usually performed with an on-site visit to the subject property.  A component of the process that isn't performed by on-line guestimators.

 

The SmartMoney article written by Alyssa Abkowitz is really an in-depth piece that goes more deeply into the process of home appraisal and the use of on-line calculators.  I recommend consumers and real estate pros read it in its entirety.  It can be accessed via: “The Fuzzy Math of Home Values.”

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Re-Blogged 11 times:

Re-Blogged By Re-Blogged At
  1. Tamara Inzunza 11/17/2011 06:17 AM
  2. Scott Fogleman 11/17/2011 06:24 AM
  3. Barbara-Jo Roberts Berberi & Corinna Birgit Cromartie 11/17/2011 08:57 AM
  4. Lisa Wetzel 11/17/2011 10:18 AM
  5. Janice Roosevelt 11/17/2011 10:34 AM
  6. Kate Elim 11/17/2011 01:10 PM
  7. Gabe Sanders 11/21/2011 06:56 AM
  8. Martha Brown 11/21/2011 08:05 PM
  9. Barbara Altieri 11/27/2011 09:18 PM
  10. Praful Thakkar 11/27/2011 09:49 PM
  11. Mary Macy 11/27/2011 10:04 PM
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Ambassador
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Brad Andersohn
Zillow - Nat'l Outreach Mgr & Dir. of Zillow Academy - Fairfield, CA
ActiveBrad 707.646.1876

Ok, I'm gonna have to pipe in now... sorry I'm late. 
I was actually helping some other AR members over on another post...

Google is a starting point to find and search the web for anything and everything...

WebMD is a starting point to determine your illness or ailment....

Yelp helps you decide based on others opinions, but you don't have to go/buy there....

Zillow is a starting point to gather data and information about a variety of real estate topics....

ActiveRain is a starting point for consumers to come see what agents are doing and saying.....

Seriously, all these sites offer a certain degree of value to someone and they do help the reader/user to make a buying or selling decision in one way or another but none of them can replace a good, honest, caring, trustworthy local professional expert indeed.  In fact, many consumers are finding those professionals on our site. 

We have always said that Zillow is a great place to get a zestimate, sure, but a successful local agent and or an appraiser is the best place to get your "ZACTIMATE!!"

No matter what some may think or what we try to do or say to convince agents that Zillow is on their side and trying to help connect them with the 25 million visiting the site each month, there will always be those that feel or believe it isn't good enough for them or their business... no matter what!! 

On the other side of the coin, there will always be those out there like this guy that uses nearly every opportunity available from sites like Zillow to convert contacts into clients and closings.  I only wish that I could say this works for everyone, (I wish it did) and that it's "One Size Fits All!" 

While we may not be perfect folks, we will continue to seek perfection in every aspect of our site and company!!

"Sticks and stones may break your bones... but a Zillow Zestimate will never hurt you!"  :-)

Nov 17, 2011 12:34 PM #47
Rainmaker
111,122
Jerry Morse
The Morse Company - Janesville, WI
BBA,GRI

You can't trust on line calculators.  Our market has shown price increases for 3 months in a row, but RPR showed that it went down $15,000 in the last 30 days and that is the NAR's site.

Nov 17, 2011 12:38 PM #48
Ambassador
477,268
Kate Elim
Dockside Realty - Spotsylvania, VA
Realtor 540-226-1964, Selling Homes & Land at LA

Hi Myrl...Thank you for the suggestion regarding, The Fuzzy Math of Home Values.”  I plan to take a look at it and if it's as good as you say (and I have no doubt it will be) I plan to make copies of it.  I think it will be a nice tool to share with owners at a listing presentation while discussing pricing especially if they quote any of these "estimates".

Kate

Nov 17, 2011 12:56 PM #49
Rainmaker
1,190,863
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Alexandra - An "experienced professional" can be worth their weight in gold!

Barbara - I think it is important for consumers to understand that on-line calculators do not take into consideration condition, and improvements.  Nor is their information compiled from an on-site visit to the "subject property" inspection.

Nov 17, 2011 01:09 PM #51
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Myrl, those online guessers are just that guessers. Nothing is as precise as getting a local agent to work up comparables and get within a few dollars of fair market value. If the client has issues with that they are going to be problems any way.

Nov 17, 2011 01:16 PM #52
Rainmaker
1,190,863
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Brad - Thank you so very much for reading and commenting on this post.  I was so hopeful that you would, and that you would share your Zillow points of view.  You make very valid points about "on-line" sites in general, and you also present positive perspectives for agents who are able to convert contacts into clients and closings while using Zillow and similar sites.  I guess my concern is mainly for sellers, who are seeing exceptionally low zestimates showing up on their internet listings, with guestimate values considerably lower than their fair list price.  In Joan's (#7 comment) she showcases an instance where one of these value guestimates precipitated an avalanche of of low-ball offers.   Again, I am grateful you commented, and shared your perspectives about this topic! 

Nov 17, 2011 01:23 PM #53
Rainmaker
1,190,863
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Jerry - It seems they are all over the place on evaluations.

Kate - I think the original SmartMoney article would be a great tool to have at your fingertips.

Nov 17, 2011 01:31 PM #54
Rainmaker
1,190,863
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Ed - It is important that buyers and sellers connect with a good real estate professional for evaluations.  A friend of mine who lives in Boise, Idaho.  She shared an example of an on-line estimate with me.  She lives in an area of Boise that has a number of mobile homes placed on lots.  These properties abut a newer section of upper-end custom homes in the $500,000 range.  The guestimators were evaluating the custom homes at the mobile home values.

Nov 17, 2011 02:02 PM #55
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William Johnson
RE/MAX Associates - San Diego, CA
San Diego Real Estate Voice, GRI CRS e-Pro CDPE

Good Morning Myrl, Congrats on a well deserved feature. Another  outstanding contribution to our on going discussion about the questionale or relative value of these automated valuations. I suppose the real upshot is really about monitizatiion of its site therein lies it's suspected reason for existence and most likely not just about the claim of a value added service in the industry. 

 

 

Nov 17, 2011 02:14 PM #56
Rainer
239,588
Donald Reich
Prudential Centennial - New Rochelle, NY

Zillow's "Zestimates" are so off, its not funny. They are doing the public a major disservice by spreading information that is completely innacurate, and often not at all relavant to the actual value of a home.

Nov 17, 2011 02:49 PM #57
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Brad Andersohn
Zillow - Nat'l Outreach Mgr & Dir. of Zillow Academy - Fairfield, CA
ActiveBrad 707.646.1876

Myri - I understand and respect your concern. Thank you. I'm a smart consumer just like everyone else here and appreciate the information that's available out on the web, but ultimately I rely on those I know and trust to help me make good solid buying and selling decisions. I think the majority of consumers out there are the same way.

Just because our zestimate shows a value not exactly matching a listing price doesn't mean it won't sell at the best suggested market value for that property.  Heck, many of the initial original listing prices set by agent(s)/seller(s) end up getting a price reduction with or without a visual zestimate attached to it. (a big percentage anyway)

I guess it comes down to really knowing the local markets (Download this and have at all times) and understanding how to use the data and information from sites to best compile a competitive, comparable, complete market value price? 

Isn't that what we expect from our local agents or appraisers who are getting paid to do exactly that?  Zillow is a FREE service and just a starting point for consumers. We offer more information about homes in America than any other site on the web. Consumers know this and that's why they go there. Tom Ferry says "They Got The Eyeballs" but we still need your hands in the pie, streets, neighborhoods, and local marketplaces.

I wish you could have been on the webinar we just ended about 45 minutes ago where we shared a ton of tips and tools that help agents get the most out of Zillow in these very situations and circumstances mentioned in your post and in the comments here. 

Many of the best ideas and suggestions we share don't come from me or Zillow, they're coming from the agents using these tools to capture and convert both buyers and now sellers too. I hope you'll consider attending at least one of our sessions with an open mind, I promise you'll see things much differently than you may now.

I'd love nothing more than to personally be able to show you how our "home value calculator" viewed and used from a different perspective can be a great tool in creating more connections and handshakes with the very audience you and others are trying to reach.

Sorry for the lengthy comment, but sometimes it's worth taking the time to voice our thoughts especially when we are very sincere and so passionate about wanting to help our fellow friends and associates in this industry. There are so many out there who are struggling and are faced with economic and financial challenges, I really just want to help.

Just know that my door is always open to those who knock.  Best always, ActiveBrad.  :-)

Nov 17, 2011 03:01 PM #58
Rainmaker
1,190,863
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

William - Good morning to you! In the internet world monitizatiion of a website is likely a huge motivator for some.  Afterall, we didn't have the Wall Street dot.com meltdown in the early part of the last decade for nothing:-)  My purpose for posting this piece, was to help enlighten the public about how these guestimator websites do work, so they can hopefully make informed decisions while using them.  I think SmartMoney's Alyssa Abkowitz did a fine job of that. 

Brad - Thank you for continuing to contribute to this topic.  You add immeasurable value to the discussion because of your perspective.  And certainly, you have insights that some of us do not possess, about how "home value calculators" can be used as tools.   I also share the sentiments in your comment, "guess it comes down to really knowing the local markets (Download this and have at all times) and understanding how to use the data and information from sites to best compile a competitive, comparable, complete market value price?"   

Nov 17, 2011 03:46 PM #59
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Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

Myrl this is a big issue too many consumers put too much stock is these sites that offers home valuation.

Nov 17, 2011 11:51 PM #60
Rainmaker
340,749
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley R since 1976;408-565-8177

Myrl,

This is a well-written and organized post.  Thank you.  The unusual thing in my mind is that people would ever think a computer-generated value would be accurate.  Perhaps in a Condo Complex or newer tract homes, but that's about it. 

Nov 18, 2011 12:07 AM #61
Rainmaker
1,190,863
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Jennifer - I had thought the same thing, and was glad to see the SmartMoney article address it.

Lloyd - I have noticed that as well.  They seem to work best in newer subdivisions, where standard quality homes have been built without a lot of variation in upgrades.  In those instances every house is more similar in value.  Only condition can set them apart.  The problem in many of these areas however, is they were built during the boom years, and the neighborhoods can be laden with short-sales and bank repos. 

Nov 18, 2011 06:05 AM #62
Rainer
18,339
Hal Tennant
HomeTown Lenders - Murfreesboro, TN
Get a Zero Down Mortgage - How to buy a home with no money down

Hi Myrl,

This is a problem for Mortgage Loan Officers as well. Just try to tell a borrower their home didn't appraise for the value we need to refi even though Zillow says differently.

I used to be able to get my favorite appraiser to give me his opinion but can no longer do that because of the regulations forcing me to order my appraisals through Appraisal Management companies.

Nov 18, 2011 04:44 PM #63
Rainmaker
512,350
Mitchell J Hall
The Corcoran Group - Manhattan, NY
Lic Associate RE Broker - Manhattan, NYC

Myrl, Excellent post and great comments. Brad has some good points about how to use these tools. Fortunately in my market I seldom meet a seller or buyers who takes an estimate from zillow or any other tool very seriously. Consumers today are quite sophisticated and many have real comps and do research.

StreetEasy.com a local real estate website is the most popular website that the consumers are paying attention to here. It gives closed sales data not estimates. NYC housing has too many variables for an online tool or algorithms to be accurate or even close. Online tools usually picks up data from city records but they may be wrong records.

The New York City department of finance even this disclaimer on their website:

The property tax assessment process starts when the city's assessors determine the market value of your property. Despite the name, this value has little to do with what someone would actually pay for your property. In some neighborhoods the market values are close to actual property values. In others they can be as little as 5% of true values. Even within neighborhoods there can be wide variations.

 

 

 

Nov 18, 2011 07:23 PM #64
Rainmaker
1,108,649
Jim Frimmer
HomeSmart Realty West - San Diego, CA
Realtor & CDPE, Mission Valley specialist

Maybe if one of those online companies had a computer as powerful as Watson, they could actually create an algorithm that handles 100 million homes well. Until the, all real estate is local. Unfortunately, we can't get the national media to understand that.

Nov 19, 2011 05:28 PM #65
Rainmaker
2,056,227
Roy Kelley
Realty Group Referrals - Gaithersburg, MD
Roy and Dolores Kelley Photographs

Well done post.  I want my evaluations done by a local real estate professional.  Everything else falls into the category of guesstimates.

Enjoy the season of Thanksgiving and be sure to have your camera in hand to capture those special moments.

Chrysanthemums

The Chrysanthemum Festival at Longwood Gardens, October 29 - November 20, 2011.  Our visit was on Tuesday, November 8, 2011.  Longwood Gardens is located in Kennett Square, PA.   Photograph by Roy Kelley using a Canon PowerShot G11 camera.

Roy and Dolores Kelley Photographs

Nov 20, 2011 05:41 PM #66
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Praful Thakkar
Keller Williams Realty - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Myrl, you are right - it's all fuzzy math! A buyer called me on my listing based on Zillow price 4 days ago because Zillow showed lower price than list price. Today I looked at it once again - and it is almost $50K more than it was 4 days ago. I am sure prices did not go that high in 4 days...

Nov 27, 2011 09:47 PM #67
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Rainmaker
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Myrl Jeffcoat

Greater Sacramento Real Estate Agent
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