Last Updated on July 16, 2022 by Luke Feldbrugge
Whether you’re looking to buy or sell a home, major real estate sites like Zillow and Redfin make it easy to get a home value estimate. The information is listed prominently when you look up any address or use their search tools. But housing markets are in constant flux and there are countless variables that factor into a home’s true value. So, just how accurate and reliable are these estimates? To help you make the most of online resources and get the best possible price for your home, here’s a look at how online calculators determine home values and how you can use that information to your advantage.
How Home Value Estimators Work
The square footage, number of bedrooms, bathrooms, interior updates, lot size, neighborhood, etc. all play a factor in determining how much your home is worth. The best home value estimators would take all of these factors into account. But do they? The answer is: it depends.
Sites like Zillow are generally very upfront about how their tools work and how they arrive at any given estimate. For Zillow’s Zestimate®, the home value is based on “public and user-submitted data, taking into account home facts, location and market conditions.” This public data is key, and Redfin spells it out nicely when they say, “Redfin has complete and direct access to multiple listing services (MLSs), the databases that real estate agents use to list properties. We use MLS data on recently sold homes in your area to calculate your property’s current market value.”
So, essentially the sites use what they have available to come up with a number. But it’s the “user-submitted data” that can determine whether a home value estimate is accurate. If a home hasn’t been sold in years and major renovations or additions have been made since then, they may not be reflected in the online estimate because that information wouldn’t be in the public record.
Thankfully, there is so much data that is available that estimates are rarely off by a huge margin. Still, it’s important to recognize the difference between a home value estimate and an actual appraisal, and to be cognizant that estimates may not be perfect when shopping for homes.
Errors in Home Value Estimates
The fact that major online calculators may be working from incomplete data means that home value estimates may be off. But it isn’t by much. Redfin strives to deliver estimates that are within 3% or less of a home’s selling price. Zillow even goes as far as to list their median error for top housing markets. In their latest available data, the biggest discrepancy between estimate value and sale price was in the San Francisco area where their estimates were only off by around 3.6%.
Zillow is also quick to note that their estimate is only a starting point, and “encourage(s) buyers, sellers and homeowners to supplement the Zestimate with other research such as visiting the home, getting a professional appraisal of the home, or requesting a comparative market analysis (CMA) from a real estate agent.”
Home Appraisal Process
The best home value estimator you can get is a professional appraiser, and the home appraisal process is very straightforward. A professional, third-party appraiser will tour a home and conduct a thorough inspection. They will look for all those things an online estimator might miss within the home and then conduct a comparative market analysis to arrive at an appraised value.
If you’re looking to buy, the appraisal will only happen after you’ve put in an offer and it’s been accepted. The appraisal is to make sure the value of the property matches up with what the bank is willing to loan you. If you’re looking to sell your home, you could hire an appraiser as a first step to determine what your home is worth.
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The best home value estimator is the one that gives you the most accurate and reliable information possible. Online tools from major real estate websites are a good place to start. They can help refine your home search or give you a general idea of the value of your home. But you will ultimately need to have a professional take a look at a property to determine its true value. By embracing both free online tools and leveraging the experts on your real estate team, you can go from vague guess to accurate estimate and get the best possible price for your next home purchase or sale.
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One thought on “How Accurate is an Online Home Value Estimate?”
Thank you for clearing things up for me about online home value estimates. I had no idea they might be off. This really throws a huge wrench in my plans so I suppose I’ll have someone come look at it in person.