What You Need to Know About Those Online Home Value Estimates
It’s something every homeowner does when they decide to sell:
Obsessively check the estimated home value of their property on the websites of the big real estate “brands.” Zolo, Housesigma, Zillow and RealMaster have made it easy to give an idea of what to expect when offers come in — and a peek at what the homes of your neighbors, friends, and family are worth, too. However, like any tool or service that hints at certainty for things that are uncertain, the projected answer might not quite match your reality. In fact, the estimates might not even match from brand to brand.
That’s because these valuations primarily rely on algorithms to arrive at a number. These algorithms calculate a range of data points that affect value. Sounds simple, right? Well, that’s exactly where it gets complicated.
Understanding What Goes Into an Algorithm
Every brand’s algorithm is different. There are hundreds (maybe even thousands) of different data points that influence the price of a home: Interior/exterior features, the age of the home, the square footage, and the location, just to name a few.
Even if each brand included the same data points, the algorithm would weigh them differently. After all, some factors are just more important to a home’s price. Stainless steel appliances won’t affect value as much as square footage. Yet square footage might not matter as much as the neighborhood.
Both of these elements of an algorithm come into play with comparable sales, a critical part of any home evaluation. In order to find the prices of recently sold homes that are similar to yours, the algorithm needs to find the properties that fit the bill, then evaluate those properties against yours.
While algorithms are kept secret for a reason, the big brands have been somewhat open about some parts of their processes. Here’s what you need to know:
How Zolo Calculates Home Values
Zolo's Home Value Calculator Tool. It gives you an instant estimate of the current value of your house by entering your address above. Zolo estimates Canadian home values based upon many factors, including nearby homes, comparable properties, recently sold properties, Canadian Census data, location, and other real estate market information. Our home value estimator is a starting point for determining your home's value and not an official appraisal or REALTOR® recommended selling price.
It does remind you many times it is a starting point and not an official recommended price for selling you home.
How HouseSigma Calculates Home Values
HouseSigma claims it uses artificial Intelligence to calculate your home's value.
does utilize a data model to come up with a number, the process starts with what you tell them about your home’s condition, features.
Using this information, Housesigma runs their data models on comparable homes that recently sold and local market trends. The algorithms that involve local data were reviewed by pricing teams who have some knowledge of the area. Housesigma also says the algorithms consider the difference in the time of year between comparable home sales.
How Zillow Calculates Home Values
A Zillow “Zestimate®” is perhaps the most well-known of the big brands. Though it’s noted that this value isn’t to be considered a replacement for a market analysis, this figure is what many people think of when they’re talking home values.
Calculations depend on publicly available information, like past sales, mortgage records, tax assessments, and building documents. The formula doesn’t consider the “intangibles,” upgrades, or even new appliances. While you have the ability to update info about your home and correct inaccuracies, only information deemed significant will change the value.
If your area doesn’t include a lot of information in public records, or if your region doesn’t have a lot of transactions to analyze, it’s harder for the algorithm to arrive at a value.
Accuracy can also differ depending on the market. A comparison of top metro areas by Zillow shows that the home value was within 5% of the final sales price 62.7% to 92.8% of the time.
Due to these factors, Zillow is pretty open about how their figures should be considered as a “starting point."
How RealMaster Calculates Home Values
The “RealMaster Estimate” does not automatic pull an estimate for you, Rather you have to choose yourself 3 comparisons of past recent sales. Your home draws on 3 of the past recent sales in the area and calculates an estimate for you. You have option to choose your own past sales and comps to get the estimates. The evaluation result is based on comparable listings selected.
RealMaster does have a disclaimer stating that the evaluation result is NOT suitable as reference for decision making.
The Takeaway: Computers Can’t Beat Expertise
While these online estimates can give you a general idea of your home’s value, your Realtor can consider the nuances that algorithms can’t. Whether it’s a recent update to your home or new trends with buyers in your area, a Realtor can consider the whole picture when creating a pricing strategy. For the most exact figure regarding value, a professional home appraisal can clear up any lingering doubts.