Clients quote these numbers all the time and wonder why they can’t sell their home at the quoted price on some of these sites, or balk at paying so much for a home that one of these sites claims is worth so much less compared to what it is listed for.
There are many sites out there that will claim to tell you what your home is really worth. Understanding how these sites work will give you a better idea of how accurate, or rather inaccurate they are.
One thing most of these sites will claim is that they “use advanced algorithms” that are furiously tweaked to give you the most accurate price possible. What the sites actually do is aggregate data and use that to see how it affects your home. Without seeing a home, it can be difficult to gauge what it will sell for, especially if it is in a neighborhood with vastly different home prices and combinations of new and old constructions.
Taking Zillow for instance, as of their February 20, 2013 update, 74.5% of homes sold in Chicago, IL were sold within a 20% range of Zillow’s “Zestimate”. On a $500,000 home sale price, that means the listed Zestimate just prior to sale could be anywhere between $400,000 and $600,000. That price swing will definitely include several possible groups of buyers and is very deceiving.
The majority of the estimates will not take into consideration the condition or updates on the home, and thus will not be very accurate. Additionally, many of the estimates will use data for a full county to gauge where prices are going, unfortunately, not all areas of a county will change in price at the same rate and some areas of a county will be in greater demand than other areas. Area changes such as new developments or neighborhood upgrades to amenities can sway the demand of one area over another.
So what’s the point? Many of these sites are designed to serve your real estate needs. They peak your interest and really are there when you are beginning your search. They make their money from providing preferred placement and advertising for people/companies in related businesses or are involved themselves in related businesses; Think mortgage brokers, real estate agents, title companies, etc. So they are not necessarily a bad thing, but really are starting points to connect you to someone that can give you much more accurate information.
So go ahead and check out your Zestiwhatsmyhomeworth number, but don’t list or buy a home based on it, and don’t fret, if you really want a more accurate number, call up a realtor. A good realtor that knows you are serious about buying or selling a home will invest their time into making sure they give you as accurate a number as possible. And next time your friend or neighbor comments about a home value based on one of these sites, you’ll understand that these sites are only as accurate as the information they have, and at times that really isn’t very accurate.