Do not make any major decisions based on an online, automated home valuation. You could lose a lot of money. A lot.
How does a $60,000 loss on a $300,000 home sound to you? Ridiculous? Read on.
Of course you are going to look up the value before you make an offer on a home, or prior to selling your current place. Just remember, that number is almost guaranteed to be wrong.
If you make life-changing decisions based on bad information, then you’re jeopardizing your future.
How can I be so sure the information you get online isn’t correct? Because it is statistically unlikely, and most of the sites will even tell you so, in the fine print.
Does it matter which site you use? Not really. Some are better at guessing than others, but they all vary dramatically.
When determining value on a property I typically check ten different online valuation sites. Not because I think they “know” what the home is worth, but because the seller and potential buyers are checking these sites, and it’s better to know in advance what disinformation they are consuming.
Those values are all over the map!
For example, a home with a true market value of $300,000 might have automated valuations ranging from 225,000 to 375,000. That is a large margin of error!
What about the infamous Zillow Zestimate? This is the margin of error stated on their website as of July 26, 2018:
- Nationwide, Zestimates are currently within 5% of the final sale price 52.9% of the time.
- In the U.S. as a whole, Zestimates are currently within 10% of the final sale price 73.3% of the time.
- Nationally, Zestimates are currently within 20% of the final sale price 85.8% of the time.
Let’s put this into real world numbers using the $300k actual value example.
Just over half of the time (52.9%) the Zestimate is within $15,000 (5%) of actual final sales price. That could be high or low, so a $30,000 swing from 285,000 to 315,000.
The Zestimate is within 10% on another 20.4% of homes. That means a $60,000 swing from 270,000 to 330,000. If the buyer believes the real value is 270,000 and the seller thinks it is 330,000… well it’s easy to see we now have a significant problem.
Another 12.5% of homes are within 20%. That produces a $120,000 range of value from 240,000 to 360,000! That is 40% of the actual value! You don’t want to make any decisions based on this information!
Zillow admits they are not even within 20% (high or low) on 14.2% of homes nationally.
Do you want to guess which group your Zestimate falls within? It’s a roll of the dice!
If you’re in the 52.9% group you could lose $15,000.
If you’re in the 20.4% group you could lose $30,000.
If you’re in the 12.5% group you could lose $60,000.
If you’re in the 14.2% group you could lose even more than that!
The last two groups comprise 26.7% of properties. That means you have a greater than 1 in 4 chance of losing $60,000 or more if you base your buying or selling decision on the information you obtained from the big gorilla of real estate data online.
This is a multi-billion dollar company that draws millions of people to the website each and every month. And I have the nerve to warn you against believing what you see in black and white on that website? Yes. That website and dozens of others. Pay attention.
The actual Zestimate, not the range of possibility, the actual published number on my personal residence has gone up and down over the last year $59,000. That is absurd. Home values don’t rise and fall with the wind, like the stock market.
Side note: Facebook stock is down 20% today. Your home doesn’t go on a roller coaster ride every month.
These robot valuations use raw sales data available from public records but they have a huge disadvantage: They have never been inside your home.
They don’t know if the flooring, kitchen cabinets and roof all need replaced, or if they were just completely updated. They can’t see the view; they don’t know if the comparative sales were well cared for or not; they can’t tell if the home next door is an eyesore or worse; they can’t hear the traffic from the highway that decreased the selling price on three of the comparable sales they are using.
The bottom line is you need a trustworthy professional to give you good information.
Contact a full-time, experienced and knowledgeable professional whom you trust to give you good advice so you can make the best decision for your family.
All the Best!
Jim Sweat, ABR, CLHMS, CRS, CDPE, GRI, e-PRO, ILHM
Featured in Scene Magazine’s Men on the Scene 2016 issue
Author of REAL ESTATE CSI: CONTROVERSY, SECRETS, INSIGHT (coming soon)
Jim Sweat – Helping Buyers & Sellers Choose Wisely Since 1995 ™
Re/Max Alliance Group
http://myfloridahomesmls.com/JimSweat (Home Search)
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