Several years ago Real Estate agents started to notice that prospective sellers were using online valuations as a basis for where they wanted to price their home. At the time these “Zestimates” were being provided by Zillow. As agents we didn’t really expect that homeowners would take these as the actual price to use in marketing their home because these valuations were derived by a computer. A computer that can’t actually see your home or any of the other homes that make up the marketplace that determines the REAL value of your home. Nonetheless, today we have some homeowners that believe that what they see online IS the actual value of their home, and it can create some real problems.
As an agent that studies homes and prices every day, it’s hard to believe that people would think that a machine could better value your home than an informed agent that understands the nuances of a given marketplace. However, I’ve come to realize that in many cases, it’s the fault of Realtors doing a poor job. In some cases, the public just doesn’t have faith that the agent really understands their neighborhood. In others, they may perceive them as wanting to price it low for a quick sale, fully understanding the real value of the property. Last, I think some homeowners feel more comfortable that a computer might be better at this than an agent, especially if the value is higher than what the agent says.
So let’s bottom line this. Computer valuations take all of the sales in your area and make adjustments for things like lot size and pool or no pool, and spit out a value. I’ve seen them both awfully high and awfully low. Today there are many websites that will value your home and I encourage you to try this test. Plug your address into Zillow, Trulia, Realtor.com and Redfin. Look at what their values are for your property. See the large difference? We tested my assistant’s home which is a typical home in Santa Clarita – 4 beds, 2.5 baths, nice yard, top of the cul-de-sac. True value would be right at $515,000. The valuations started at $456,700 and ended at $557,900. Now why is this problematic? Because in the effort to automate everything, banks and buyers are starting to use these valuations as gospel when you go to refinance or sell your home. So let’s finish by defining exactly what determines the true value of your home.
When I wrote this article in 2012, I used the example of the quarterly email I received (and still do) from Zillow about the value of a custom home that I attempted to sell in 2010 for $1,800,000. It didn’t sell. Zillow claimed at that time the value was $2,045,000. The owner used another agent taking it as low as $1,700,000. Still didn’t sell. Zillow never valued the home at less than 2 million even though it was fully exposed to buyers in the marketplace for far less than that, and it never received offers. Now, if you were the homeowner, wouldn’t you be confused? The problem, I learned later, is that Zillow used both the original price she paid ($2,240,000) as well as the homes in her area which often sold for more than 2 million. What she originally paid should have had no bearing on her value when she went to sell. Further, her location, condition and small yard were not what buyers want in that neighborhood as evidenced by being on the market for 18 months and not selling. So the home wasn’t close to the online valuation just because her price per square foot suggested it was a 2 million dollar home. So how do we determine what a home will really sell for? By actually seeing everything in the marketplace the way a buyer would.
Value is ultimately determined by buyers and what they are willing to pay for a property. They do this by comparison shopping and often they are more educated than any computer and sadly sometimes some agents. They get to see the things that REALLY determine value, things a computer could never know. How about upgrades? I’ve sold the same model home on the same street for differences in excess of $100,000 solely because of money invested in upgrading the property. How about location? Do you think a computer knows about the home that backs to a busy street compared to one with a beautiful view? No. But a buyer does. Lot size can dramatically affect value, yet lot sizes never account for USABLE lot size. Something you and I could see and evaluate but not a computer. Popularity of floor plans also is huge in buyers determining value. For example, single stories in Santa Clarita often sell for a premium because of lack of inventory and high demand. My opinion of value for single story sellers is almost always higher than the online valuations. Many other factors determine value from the position of a home on the lot, exterior curb appeal, interior cleanliness to privacy in yard. Last, if a market is heating up, what your home was really worth 90 days ago may be much higher today than 3 months ago and the opposite can be true as well.
In short, when valuing your home, you want accuracy if you are planning to sell or refinance. I’ve told hundreds of homeowners over the years that I can often sell their home for more than the appraiser will appraise it for because their home is better than the comparables and the market could be strong in their area. Value changes weekly based on market conditions and understanding this and everything else discussed here is honestly something only a human being can understand. Not a computer.