Plenty of sellers have visited online home valuation sites such as Zillow, Trulia, eAppraisal, and others only to be shocked at the estimated value of their homes. While most sellers are pleased when the value appears higher than they expected, just as often online valuations come in far lower.
How do they do it? Home valuation sites contract with title companies to obtain county tax roll data and become members of local multiple listing services nationwide to have access to local listing data (homes currently for sale and past sales). Between tax roll and listing data, these sites apply their own secret sauce (algorithm) to come up with a “zestimate” value of what a particular home may be worth.
Where’s the problem? Estimating a home’s market value is far from an exact science. These algorithms take into consideration tax and sales data for ALL properties in the general area regardless of when they sold and not just those currently on the market or recently sold, thus trends in the marketplace can’t be taken into consideration. They also don’t differentiate between houses and condos or multi-family units – all of which are often nearby each other. Most crucial though is these algorithms don’t have the ability to take into consideration whether or not a home has been updated, how well it’s been maintained, or esoteric values such as curb appeal, pool, views and proximity within the neighborhood. Sometimes the results are spot on, but this is less often than you’d hope. They’re frequently terribly inaccurate and may over- or under-estimate a property’s true value by +/- 30% (or more). As a matter of fact, if you read their fine print you’ll see they actually disclose this fact.
For these reasons, an online valuation is best used is as a general reference only – one of the many tools used to estimate a home’s current market value.