Should You Trust Online Home Value Estimates?

(Photo courtesy of Redfin)

We love computers and the way they make our lives easier. But there are some cases when an algorithm can’t truly replace the sophistication of the good ole’ human brain.

A real estate valuation is one of those cases. Automated Valuation Models (AVMs) – estimates of a home’s value generated online through machine learning – have become a staple of the home buying and selling exploration process. Some online search portals would you have you believe AVMs have actually outsmarted their human makers. Somebody call Arnold Schwarzenegger! But when it comes to your current or future home’s value, should you take a computer’s word for it? Let’s explore.

How do online home value estimators actually work?

Real estate search sites like Zillow have set up algorithms that compare homes to recently sold properties located within a short distance from each other. The algorithm pulls information that is publicly available, like the number of bedrooms/bathrooms and square footage, to find homes that would be reasonable to compare to one another. While most websites use similar information to estimate home values, their algorithms are programmed differently. So, you can expect that different websites will produce slightly varying value estimates for the same home.

The algorithm is smart. But it doesn’t know everything.

Home values are determined by so many factors, and some of those just can’t be captured by standard information on the MLS and public record.

Let’s say the current owner of what was most recently listed as a 3-bed home knocked down the wall between the home’s two smallest bedrooms to create one large master suite after she moved in. Now, the home has a total of two bedrooms instead of three. The owner also updated the kitchen with red and yellow patterned tile and floral wallpaper. She loves her new kitchen… but future home buyers probably won’t. The home is located on a busy intersection against train tracks, while similar 2-bed homes in close proximity are on quiet tree-lined streets. These are all factors that would negatively impact this home’s true value, but a computer wouldn’t know this simply by comparing recent home sales. Only an actual human brain can process qualitative information about the home’s features, buyer preferences, and the local neighborhood’s market.

Fewer recent comps means less accuracy

If there aren’t any recent sales of similar properties in the neighborhood, how does the computer determine a home’s value? Good question- if you don’t know the answer, chances are the computer doesn’t either. If any of these factors apply to a home or neighborhood you’re researching, chances are the estimate will be off:

    • The home has a unique feature that other homes in the area do not have.
    • The local market has changed significantly since the most recent comparable home sales.
    • There have been few home sales in the neighborhood in the last 6 months.
So are we telling you not to use online home value estimators anymore?

No! We are simply telling you to take these estimates with a big ol’ grain of salt.

No computer algorithm can truly offer the same value as a conversation with a licensed realtor or qualified appraiser in your area. If you’re curious about the accurate market value for your Chicago home, or a home you’re interested in purchasing, you can trust us to tell it to you straight!

By | 2017-04-05T20:13:28+00:00 December 15th, 2016|

About the Author:

Stacey is the Marketing Manager / Operations Manager at Center Coast Realty.