When looking to buy or sell a home, the internet can be both a wonderful and terrible thing. The ability to quickly find and filter information can direct our actions and raise or lower our expectations. As an agent, it’s obvious where my bias stands. I’d obviously say that nothing can replace the tailored approach of an agent helping someone understand the data. But there’s no reason to not use any available tool so long as you use them appropriately. While sites like Zillow shouldn’t be used to actually set a price or start point on offers, they can give you a general idea on if it’s worth considering the buy or sell to begin with. And you can always contact an agent anyway since typically the most accurate opinion on the direction you should take. Let’s take a look at the of the most popular sites out there:
The beauty of these sites is in their ease of accessibility; The downside is they could set an unrealistic expectation or worse… Lost money from inaccurately judging the value of a home.
Zillow’s Zestimate® is formed from user submitted data of the site’s participants along with a proprietary formula that accounts for features, location, and market conditions (again, submitted by the users.) Zillow uses the submitted information from users to also project a “forecast” up to a year in the future. The key points to keep in mind here is that their data is based on information submitted to them. This means their estimates and forecasts are based on what people took the time to report being accurate and true.
So let’s say you have someone who thinks the $4,000 hot tub they just added to their backyard raised the value of their home by $15,000, the estimates will reflect this. Do you want to pay an extra $15,000 for a $4,000 hot tub? It’s important to note that their estimate also cannot be correctly manually. It’s up to the algorithm to correct any errors based on new data coming in over time. Which of course, means that new data has to be completely accurate as well.
Zillow does advocate that buyers and sellers do additional research before relying on their information by:
- Getting a Comparative Market Analysis (CMA) from a licensed real estate agent.
- Getting an appraisal from a professional appraiser.
- Visiting the house directly whenever possible.
Redfin claims a 1.83% accuracy for on-market homes. It’s important to note that they only claim this accuracy on marketed homes. If you haven’t put your house on the market yet, there’s a reason they can’t accurately estimate your home. The reasoning behind this is how they get their data, which just like the other sites where it’s from users. Unfortunately though, users can actually opt out of having their information farmed by Redfin (more on that later).
In my market, the Greater Nashville Area, their off market accuracy rating is 5.35%. They currently (as of April 2018) say there are 202,343 homes in Davidson County. But as of 2016, there are actually 306,393 homes with over 10,000 building permits on issue at the time. Keep in mind that’s their 2018 estimate vs the 2016 actual data from the census office. Considering Nashville has had just shy of 100 people a day move into the area for the last couple years, you can see just how much more inaccurate that actually is to the current actual numbers.
Another important data point that can’t be ignored is that you can opt out of their algorithm. This means it’s possible to check your home and notice that houses for sale in your neighborhood are not listed. So when you go to sell your home and basing it on the price in that estimate, the buyer’s agent is making offers based on different data. That agent has access to information Redfin doesn’t. Leaving you in for a letdown when you leave money on the table because you were shortchanged on an offer. You may evaluate your home too low, or put in an offer on a home that’s too high. Both of which can cost you thousands at closing.
Again, their estimates are automatically generated by computers and cannot be manually corrected by a human if the information is inaccurate.
When buying a home, a Comparative Market Analysis from an Agent can make sure you don’t offer too much, and when selling it can make sure you don’t ask too little.
Trulia shows that 44.4% of their estimates were within 5% of the final sales price, 63.6% where within 10% of the final sales price, and 79% were within 20% of the final sales price for Davidson County in Tennessee. (Which is about 3% on average more accurate than their reported national average.) They use data experts with a proprietary algorithm that analyzes current market data collected from users and agents reporting to the website. Their data collection is based on the speed of the systems reporting, including municipalities, local agents, and users. Like the other services, their results cannot be manually corrected as the computer decides what information is relevant to the user.
And just like the others, Trulia recommends that you talk to a licensed real estate agent and appraiser before selling your home to make sure their data is verified and used appropriately.
It’s important to note that NONE of these sites claim they are doing an appraisal, and all of them do recommend that you still talk to an agent as their reports do not take the place of a local Comparative Market Analysis that’s done with up to date data collected by an agent. It’s easy for an agent such as myself to say, “Get an agent, don’t get duped!!!”, but the fact is that none of these sites are trying to dupe you. They openly say they are not replacing your agent, and it’s up to you to decide how you’ll proceed.
The beauty of these services is that it makes it easier for people to get a general idea of what they may get for their home. It helps them dream and contemplate what they could do with their future. The downside to these services is that it makes it easy for people to set unrealistic expectation on property value. This leads to letdowns or costly errors because they offer too much or ask too little for a home.
Tools are important, I recommend you use every tool available to you. Use these sites, use an appraiser, and use an agent. The more information you have, and the more objective you are about the information you have gained, the wiser a decision you will make when moving forward with your plans. An agent, such as myself, is going to have access to data and prune the results to only relevant information to make an analysis of your home.
The most important take away? When buying a home, a Comparative Market Analysis from an Agent can make sure you don’t offer too much, and when selling it can make sure you don’t ask too little.