In the quest to come up with an easy and instant home price estimate, plenty of sellers visit web sites for online real estate price evaluations, such as Zillow, Trulia, eppraisal.com, often with less than satisfactory results.
This shouldn’t be much of a surprise; there are many factors going into a home’s value, and these computer systems can’t be expected to account for them all, in every market across the country. The algorithms used by these sites to calculate any property’s value are proprietary and confidential, so nobody outside of these companies know how exactly and for certain how they work.
But it is generally known that home valuation sites contract with major data aggregators such as Core Logic to obtain county tax roll data – all property is registered with the county for taxation purposes. They also find ways to become members of local multiple listing services which are either subsidiaries of real estate associations or owned by local real estate brokers. That way, they have access to listing data as well as historical sales data.
Between taxation and listing data, home valuation sites apply their own secret sauce, or algorithm to come up with zestimates or approximate values of what homes are worth. Sometimes the results are spot on – you know the saying, even a broken clock is right twice per day.
If you think about it though, you’ll realize there’s no way they can produce an estimate of value anyone should actually rely on. The algorithms can’t possibly take into account whether or not a home has been updated, how well it’s maintained, or esoteric values such as curb appeal and views. For that reason, online valuations should be used only as one of several methods to estimate a home’s value.
As Zillow says on its web site:
the Zestimate is a good starting point as well as a historical reference, but it should not be used for pricing a home.
These sites are fun to play around on, but if you really want to know what your home is likely to sell for, hire an appraiser or ask a real estate professional for a comparative market analysis (CMA) or at the very least, an automated Realtor Property Report (RPR).