When it comes to estimating the value of a home for sale in Atlanta, GA, or San Diego, CA, homeowners usually find themselves stumped by one of the following scenarios.
- The online estimate is far lower than an appraiser’s estimate.
- Real estate agents say the home is worth less than the online estimate.
- The bank’s automated valuation is much lower than expected.
No matter the scenario, the inevitable result is homeowners asking the same question: “How do I know if an online home value estimator is accurate?”
As with everything in real estate, the answer is simple (although frustrating): It depends! Automated online home value estimators generally use a computer algorithm that has been formulated to try to do what a human appraiser or real estate agent would do: compare the property (your home) against other nearby homes that have recently sold (the comparable properties, or “comps”). However, a computerized algorithm doesn’t have human eyes that can reality-check the comps, the aesthetics to compare your home against the characteristics that are listed for each property in the public records, or the region-specific savvy to accurately compare them against each other.
While home value estimators are often helpful, informative, and accurate, keep an eye out for the following scenarios that frequently lead to an “off” estimate from an online home value estimator.
1. You live in an older area. An online home value estimator will compare your home with others based on information included in public records: bedrooms, bathrooms, square footage, etc. If the source data in those records are flawed, the resulting estimate is likely flawed too. And the older your home or your neighborhood, the better the chances that public records are inaccurate.
When people make changes to their homes and get different sorts of permits for them (or don’t pull a permit at all), even as records systems evolve, there is an opportunity for error to creep into the public records for your home or your neighbor’s home. If you live in an area where homes predate detailed public property records, it’s not at all bizarre to see some issues with public records–based online home value estimates.
2. Your neighborhood borders dissimilar districts. Many automated home estimate algorithms pull comparable data based on a geographic radius around the subject home (yours). Human appraisers do this too. So far so good, right? Well, human appraisers can often spot where a very nearby comp is completely off-target because it’s across a city or neighborhood line, in a very different school district, or otherwise in a location that makes the comp property’s value significantly different from yours. Online estimates aren’t as good at considering these factors. (Some would say this is also a common issue when human appraisers have little or no experience with the area, or in cases where home values are based on school districts that vary widely in quality within a tight geographic radius.)
3. Your home has been customized extensively without permits. If your home is described in public records as a cozy two-bed, one-bath home, but you or former owners have converted it into a sprawling, five-bed mini-manse with four bathrooms, you should expect the online value estimates to be wrong. (Exception: If your home has been listed for sale on a local multiple listing service with an updated attribute list, it’s possible that these updates will carry through to the estimate.) One of the leading reasons for homes to have real-life characteristics very different from their public-records profile is that they have been upgraded, remodeled, or customized without the correct city permits. An experienced agent can help you understand how the market would perceive and react to your unpermitted modifications — it’s a highly situation-specific issue.
4. The market has changed a lot very recently. In rapidly ascending (or descending) markets, even relatively recent sales are simply a poor indicator of what a qualified, willing buyer would pay for the home on the current market. This is another issue that can make both online (and human!) appraisals less accurate, but if you’re aware that your market has recently taken off or plummeted, you shouldn’t count on an online estimate to give you an accurate indication of your home’s value.
5. Homes don’t sell very often in your area. This is common with rural properties and estate homes with large acreage. If the last nearby home sale was two years ago, the algorithm that computes your home’s value simply doesn’t have much to work against. An online estimator might try to apply recent market trends to the comparable sales prices from way back when, but the reality is that the lack of recent comps can foul up both online estimates and human appraisals.
6. Your home has unique characteristics. If you’re a homeowner whose several-acre backyard had been professionally cultivated into a smaller-scale replica of a national botanical garden, it’s likely you’re concerned that the value of this wonderland might escape the understanding of a buyer or an appraiser. Similarly, if your home is a converted lighthouse, shipping container, or Frank Lloyd Wright original, or if it has a beach-style resort on the back 40, you probably shouldn’t lean too heavily on automated or online value estimates.
Contrary to popular opinion, there are regions where online home value estimates are highly accurate. But they tend to be areas with tract homes, subdivisions, or planned communities where the homes are similar. As you might imagine, if every home on your block or in your town was custom-built, and they vary widely in style, size, specifications, age, or condition, it will be hard for the computer to draw comparisons the way a buyer or even an appraiser would.