Dave,
We are thinking about selling our house, but we would first like to know how much our home is worth. We’ve seen a few websites—like Zillow and Truila, that say they can estimate the value for us, but we aren’t sure if they are reliable. When you are selling a house how do you determine if these websites are a reliable source for establishing the value of our home?
Tom, Grand Junction
Tom,
I love this question! For the purpose of this answer we will focus on Zillow. Zillow has established itself as the “go to” website for helping the public not only keep track of local and national real estate trends and homes for sale, but has also been effective at instilling the perception that it can help you establish a value for your home with their “Zestimate”.
I encourage you to go to Zillow and click on the FAQ, frequently asked questions, and scroll down to the “How accurate is the Zestimate?” Here you will find out how good their marketing has been. The marketing has been so good that the public has willingly flocked to a product that is almost wrong more often than right. In terms of statistical accuracy a “Zestimate” is virtually worthless. What Zillow.com is admitting, in the fine print, is that their Zestimate is not overly accurate. There are too many variables that don’t have to do with measurable and quantifiable characteristics, to allow a computer to provide an accurate statistical analysis on a home’s value. Let’s dive into some of the specifics!
When the Zillow website states that the Zestimate is accurate within 5, 10 or 20% keep in mind that can potentially mean a PLUS or MINUS percentage number! In other words, IN COLORADO, if an “off market” (meaning the home is not currently for sale) home zestimate is $450,000 you can figure that value is correct within 7.5% ($416,250 – $483,750…. a $67,500 spread) only 46% of the time and 54% of the time they are even more inaccurate! This means that if you are on Zillow and your home is NOT on the market, the value provided by the Zestimate cannot be considered accurate… it’s more of a poor guesstimate! On the bright side…. If we look at the Zestimate numbers of “on market” homes the numbers are much more reliable.
Zillow’s accuracy numbers in Colorado for “ON MARKET” homes (meaning a home that has been listed for sale by a real estate agent or for sale by owner) the accuracy increases significantly (95% are within +/- 2.5%) and are much more reliable. Why such a dramatic increase in accuracy AFTER a home goes on the market? This is because they have a local real estate agent establish a market number so the Zestimate can react accordingly. In their own FAQ’s they cite that after a home is listed that their algorithm incorporates new listing data to provide “valuable signals” about the home’s eventual sales price! I find this statement funny….. the new listing data or “valuable signal” is an accurate list price established by someone with local market knowledge!
Overall, I would say that online valuation modulators are not a reliable source to establish a home’s value. At Zillow.com it goes on to say that a “Zestimate is a good starting point as well as a historical reference, but it should not be used for pricing a home.” The very best way to establish your home’s value is to have a local real estate professional (or two or three) out to view your home and help you establish a proper market value for your home based on neighborhood home sales and what those numbers indicate that a buyer is willing to pay for similar homes! These quick computer tools are novel and potentially useful to gauge the overall market temperature, but that may be the limit of their usefulness at this juncture. No doubt there will be many that work to improve the AI in an attempt to better hone property values, but that day has yet to arrive.
Hope that helps,