“You’re home is worth…[click here]”
“Do you want to know what your home is worth?”
“Your neighbors sold their home—guess how much!”
We all see these solicitations all the time—via email, in our mailbox, on billboards. You’re surrounded by companies and services who can give your home its value to the penny. But how valuable are their estimates?
The Rise of the AVM
There’s no doubt that the proliferation of real estate information and, with it, the rise of the Automated Valuation Models (AVMs) have been transformative for everyone involved in real estate. Values are no longer safeguarded by agents or appraisers. Anyone who can navigate the internet can find free valuations as long as they have an accurate address. But there are some big questions you need to ask.
Are they accurate? They can be..
Are they easy to use? Most are.
Are they valuable? Well, to use an old adage, you get what you pay for…
The Technological Achievement
There’s no question that these services’ capacity to aggregate real estate information and give you anything close to a real value without even seeing the property is kind of amazing.
But Zillow has created a myth that its valuations are absolutely correct, regardless of what you might know (especially if you’re a Realtor). It’s too bad because Zillow is a pretty darn good tool if you know how to use it properly.
Where Zillow Missed
For a while, Zillow was it. It was the first big name in the game. It even branded its valuations – Zestimates.
They operated in a vacuum for nearly a decade, with no competition. And for a while, no other service could match their accuracy.
As more people learned about Zillow, we Realtors had to deal with it becoming more of a factor in our client services. More specifically, we heard a lot of clients telling us that “Zillow says the house is worth…” Or they just come to you with a number, which happens to match to the dollar the number you find when you go for a Zestimate. I have seen buyers and sellers rely on the Zillow valuation without questioning how Zillow arrived at the number. As if the only thing needed to validate a number is for it to appear on a nicely designed web page.
This can be pretty frustrating. The public doesn’t necessarily understand all of Zillow’s ingredients. And Zillow, while certainly possessing some amazing information, is pretty rigid in its valuation — especially in light of the unknowns. And of course they don’t want anyone to doubt the value of the their valuations. But this is ultimately a weakness that harms the site’s users.
Instead of saying ‘Our Zestimate = $276,400,” Zillow could use something like ‘Our Zestimate is between $271,000 and $278,000 and our data indicates we are 80% sure of our estimate.’
What this does is rightly recognize that there are a lot of factors in a real estate valuation that can push it up or down.
Zillow’s Competition is Better
Well, things have changed. There’s more competition in the market. And some of those new services are doing exactly as they should: creating ranges and encouraging users to think in slightly more elastic terms. And the result is that the valuations we’re seeing have quite a bit of variability.
See below:
Here is a sample of AVM’s for the following home – 157 S Colonial Avenue, Richmond, VA 23221 :
- HomeFacts – $395,000
- Zillow – $532,790
- EApprasial – $422,292
- HomeSnap – $377,100
Those values represent a roughly 30% range. So which one is correct? Well, there’s not a simple answer to that.
How it Should Be Done
The CoreLogic platform that we subscribe to as a part of our MLS states values differently.
We really like that they offer more than just a suggested value. You get an entire range of values along with a confidence interval that gives you a sense of how close you might actually be. It just feels like a smarter way to offer valuations to the public. It’s good to know that someone put some thought into this.
The Market Reacts
The availability of this more sensible valuation information is already having an impact.
We’re seeing more people ask smart questions, such as why Zillow’s valuation might different from Realtor.com’s, which is also different from Movoto. Skepticism is a good thing, especially when someone is telling you that your most valuable asset is absolutely worth $x.
People are recognizing that no estimate, no algorithm is perfect or magical. They’re understanding that the data and the factors underlying that valuation don’t tell a black and white story. There is variability and different ways to interpret the data.
Another good thing…clients are recognizing that there’s really too much information out there, and they’re asking for help in trying to sort through all the digital noise. This is good because agents—good agents—really do offer a set of tools and skills that help their clients understand the market and make sound decisions. That’s a good thing for everyone.
So definitely use AVMs, but don’t use them blindly. Ask lots and lots of questions, and don’t be afraid to ask for help.
(To read about the heat Zillow has faced recently for this exact issue, click here.)
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