If you’ve bought or sold a home in the past decade, you are probably familiar with online home value estimation tools.
Realtor.com, Zillow, Trulia, Redfin and others let you find houses for sale, and most of these sites also offer online valuation estimators.
Online price estimates, however, may not be the most accurate measure of your home value.
Before you make an offer based on any online estimator, consider these issues.
A “Zestimate” Is Just An Estimate
On its site, Zillow acknowledges that a “Zestimate” is meant to serve as a starting point when determining a home’s value, and is not an official appraisal.
In a detailed explanation of the process to its users, Zillow claims a median error rate of 4.5 percent. Zillow accuracy varies by region, however.
For example, Brad Nix, COO/Owner of Path & Post Real Estate in metro Atlanta, says just 37.8 percent of Zestimates are within five percent of a property’s actual value.
Redfin claims a median error rate of 1.84 for on-market homes.
How Home Value Estimation Tools Work
Online home value sites obtain data from a number of resources.
Redfin, for example, pulls it directly from the multiple listing services (MLS).
Most other sites negotiate data sharing agreements with the services. Those agreements tend to limit what they can do with the data.
Public records offer another source of information for many of online real estate sites.
Some sites request that home sellers provide property record updates. This can cause errors and omissions.
The source data can be a complex array of many, sometimes conflicting sources. Additionally, records from these resources can be out-of-date.
How Home Appraisals Work
The age-old adage in real estate ultimately still applies – property is only worth what someone is willing to pay for it. However, mortgage lenders demand additional assurance before approving loans.
Appraisers provide evidence of the property value, and also note visible defects. These deficiencies can impact the value of the home and possibly the safety of the homeowners.
Home appraisers undergo years of training and education before they can be licensed. Appraisals are conducted according to standard industry practices.
Appraisal Valuation Methods
Real estate appraisers use three valuation methods – the sales comparison approach, the cost approach and the income capitalization approach.
Also known as the market data approach, the sales comparison approach is the most commonly-used in most markets. This approach provides an opinion of value based on comparing nearby properties recently sold with similar characteristics.
Beyond getting an appraisal for the purposes of obtaining a mortgage, there are other reasons to hire an appraiser. These reasons include:
- Removal of PMI
- Property tax assessments
- Estate planning
Using Local Real Estate Sites
One of the services many real estate agents offer is the comparative market analysis (CMA).
CMAs help buyers set their offers, and they aid sellers pricing their properties for sale.
Real estate agents prepare CMAs using MLS records. The MLS offers live updates throughout the day, giving agents real-time access to the most recent property information available.
Real estate agents can offer homebuyers access to home searches obtaining the same MLS information available to agents.
What Are Today’s Rates?
If you’re looking to buy or sell a home, especially in a new area, online property valuation tools can be a great starting point. Still, there’s no replacement for a home appraisal, or a good real estate professional, when it comes to knowing how much a home is worth.
Get today’s live mortgage rates. Your social security number is not needed to get started, and all quotes come with access to your live mortgage credit scores.