Today’s sellers and buyers turn to the Internet to determine
their
home’s value but forget to look at the fine print.
Online Home Valuation Tools: even though sellers and
buyers turn to Internet sites to establish the property value of a home, it’s
not even close to being accurate.
Everything is on the Internet. Recipes, comparison
shopping, product ratings, music, dating, news, financial tips, economic analysis,
entertainment, medical information, every business and every person is now on
the Internet. With access to so much information, sellers and buyers now feel
empowered with the ability to go online to learn as much about the home selling
and home buying process as they wish. They can search to their hearts content
as everything is now seemingly at their fingertips.
With this access comes the sense that sellers and buyers
can control the process. They feel like they are in the driver’s seat. From
home searches, to researching about the skillset of a REALTOR®, to looking at
payment calculators, they can do a tremendous amount of research from the
comfort of their homes. Zillow.com, REALTOR.com, Trulia.com, OCRegister.com,
LATimes.com, YahooRealEstate.com, CNN.com, CNBC.com, etcetera, there are plenty
of choices to learn more about the local, regional, and national real estate
markets. There is a lot of great information available to real estate consumers
to help in the process. Unfortunately, there is plenty of misinformation
too.
The number one real estate website is Zillow.com. The main
purpose of the site is to determine a home’s value, what they more
affectionately refer to as a Zestimate®. Tragically, sellers and buyers rely on
this site in their attempt to secure the precise value of a home. In looking up
the Zestimate® of a home, sellers and buyers feel as if they are tapping into
the most complex, accurate real estate program known to man. They enter in an
address and Zillow® spits out the
exact market value of a home. The problem is that it is NOT accurate at all.
The site admits to its own shortcomings on the landing page and states, “Use
the Zestimate® as a starting point in determining your current and future home
value.” Not too many buyers are going to take the time to read that admission.
Good luck on finding the fine print too. You have to click
on the term “Zestimate®,” even though it does not have a hyperlink, to learn
more about what goes into their estimate. The fine print can be found by then
clicking on “How Accurate is the Zestimate®?” Isolating Orange County is an
even further challenge. The numbers illustrate exactly why sellers and buyers
cannot rely on this tool to accurately hone in on a home’s value. It also
illustrates why they should not even rely on the site as a “starting point” in
the home valuation process.
Their numbers are eye opening. Shocking is an even better
description when anybody with an economic background takes a closer look.
Zestimate® accuracy is computed by comparing the actual final sales price
of a home to the Zestimate® that the system originally came up with. In Orange
County, only 41% of all closed sales were within 5% of the actual sales price. That means that 59% were off by more than 5%.
For proper perspective, let’s take a look at a $700,000 Zestimate®. 5% of
$700,000 is $35,000. It could be off by $35,000 more OR $35,000 less. That
means that the actual value would be somewhere between $665,000 and $735,000, a
$70,000 gap. That is just way too big of a spread to be able to pinpoint the
value of a home.
67% of all closed sales were within 10% of the Zestimate®,
meaning that 33%, one-third, is off by more than 10%. For the $700,000
Zestimate® example, the actual sales
price would be somewhere between $630,000 and $770,000, a $140,000 gap.
And, 86% of all closed sales were within 20% of the Zestimate®, meaning that
14% were off by more than 20%. That basically means that 1.4 out of 10 homes is
off by a truckload. For the $700,000 Zestimate® example, the actual sales price would be somewhere
between $560,000 and $840,000, a $280,000 gap.
To rely on Zillow® to determine the value of a home is
nothing short of absurd. Sellers and buyers typically only bring up the
Zestimate® when it works in their favor, about a 50/50 chance of that
happening. If a home that should really sell for $650,000 has a Zestimate® at
$700,000, the seller stubbornly ends up overpricing their home and is forced to
reduce in order to find success. As a result of so many sellers feeling
empowered to price based upon an online valuation tool, the housing market is
plagued with overpriced homes.
There are thousands of valuation tools and some claim to
be even more accurate than Zillow®, but that claim doesn’t really say much.
Instead, buyers and sellers need to know the fine print which illustrates that
while the Internet may be chalk fool of great real estate information, it just
cannot be used to determine a home’s value. There are just too many factors
that go into the price of each and every home. Every home is unique, making the
valuation process too complex for even the most sophisticated computer program.
So, if you cannot use an online program to determine a
home’s value, what is the best method in coming up with the Fair Market Value? Sellers and buyers
need to turn to their REALTOR® to isolate the value, the true professional.
They are able to help factor the condition, location, upgrades, and amenities
of a home, something a computer program cannot duplicate.
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