An inside look at Chicago real estate

Online Appraisals: Whose Estimate Can You Trust?

“I have my home listed at half a million dollars, but (insert online real estate site here) gives an estimate of only $350,000. How did they get that number?”

Questions like this are coming up more frequently as real estate sites provide estimates of what a property is worth. In a world full of online guesstimates, how much faith can one put in a website’s accuracy when it comes to predicting how much your home is worth?

Big name sites like Zillow and Trulia all provide estimates on a home’s value and often times buyers and sellers believe these numbers are set in stone. However, differences between estimates and accuracy often arise.

Keeping in mind that a property is only ever worth what a buyer is willing to pay, let’s take a look at how real estate websites arrive at their estimates concerning property value. Both Trulia and Zillow use variables like physical attributes, tax assessments and prior and current transactions when giving an estimated value for a property. However, discrepancies do pop up between what these sites say a home is worth and what a certified appraiser knows a home to be worth.

It’s important to note that sites like Trulia and Zillow point out that their estimates are just that – estimates. Yet somewhere alone the way, these estimates have become gospel. Zillow CEO Spencer Rascoff says that zestimates are “a good starting off point” and that nationwide Zillow has a “median error rate of 8 percent” reports Kenneth Harney of The Columbian.

While 8 percent may sound like a reasonable rate for potential error, when talking about thousands of dollars that could mean a huge chunk of change. For instance, a home listed at $325,000, with a possible 8 percent error rate could be valued with a $26,000 disparity by these online sources.

Real estate pricing dream town

(Source: Unsplash)

Home Appraisals Inc recently published an article that looked at the difference in price points between Trulia, Zillow and a certified local appraiser. Randomly selected properties were chosen and the results show lots of ups and downs. For instance, a 2-bedroom home in Philly was appraised by a specialist for $101,000. However, Trulia appraised it at $58,000 and Zillow had it at $92,401. Discrepancies aren’t always so large. A home in Wenham, MA was appraised by a professional at $575,000 while Trulia had it at $500,000 and Zillow at $574,480. In this case, Zillow was very much on the ball.

What causes these online appraisals to arrive at different estimates compared to a professional? One issue is that websites often don’t get the bedroom and bathroom count right and don’t take into account  if a home is in bad condition or, on the other end of the spectrum, had recent upgrades.

These sites do allow for revisions to make up for the sometimes startling differences between the online estimate and the real world worth of a home. While it’s easy to point the blame at these sites for giving inaccurate estimates, we as consumers shouldn’t always rely on a website’s algorithm as the end all be all.

There are many ways to approach buying and selling property and in today’s era of readily available information, it’s easy to latch onto something like an app or a site as your technological mecca. And while technology affords us the ability to gain knowledge, streamline processes, and gather many viewpoints, sometimes traditional routes are still necessary and important.

When buying or selling a property we always recommend the human touch over just relying on online appraisals. Find an agent who will go to bat for you, listen to your wants and needs. Our agents at Dream Town have an extensive procedure whether you’re buying or selling, and they can put you in touch with a professional appraiser who understands the buying and selling characteristics of a community.

An algorithm can understand data. A person can contextualize something based on human factors, which is something website algorithms have yet to accurately calculate. After all, when it comes to one of the biggest investments a person can make, algorithms that aren’t right on the money can hurt your bottom line.