What every homeowner should know about online home value estimates
Most homeowners that are thinking of selling start searching online for what their home may be worth. There are a variety of online home value estimators providing data on an individual homes value. The big 3 we hear about most often are OpenDoor, Zillow and Redfin. They have made it easy to logon and see what neighboring properties have sold for and use that data to compare to your own. However, like any automated tool, the result it produces may not match reality. Sometimes, the results don’t even match from brand to brand. This happens because each of them use a unique algorithm to derive at value. The algorithm is made up of a range of data points that combined, affect the final value. What sounds simple in theory can actually be pretty complicated.
What goes into an algorithm?
Every brand has their own secret algorithm they use which is why the value estimate can vary from site to site. Data points such as square footage, age, home features, and location influence the determination of value. In addition to just the data points, they also decide on what level of importance to weigh each of them. Some features such as location and size may weigh heavier on overall price than certain interior or exterior features. Once again, allowing for a greater degree of variance in values among sites.
Both of these elements, the data points and weight for each, are used when comparing a home against other recent sales. These recent sales are a critical part of any home valuation and the algorithm needs to select the most appropriate sales to use in comparison. The proximity, features, age and size are all important in the decision of what to compare a home to. While each brands algorithm is kept a secret, they do share some parts of their process. Here’s what you should know:
How Opendoor calculates values
Opendoor is clear on their purpose for calculations – to buy your home. What they are really doing when talking about value is making an offer. They use a model starting with the information that you tell them about your homes condition, upgrades and features. An important part of their final value (or offer) is how specific you are on the data you give them. With that information they run a comparison against other homes that have sold in the area. They say that they also take into consideration the time of year when considering value.
Opendoor will follow up the online estimate with an in-person visit to confirm the features and condition, and may alter their offer based on what they see. It’s important to understand that their initial offer is based on the homeowners word, which means their estimate is only as good as the information they receive.
How Zillow calculates home values
The Zestimate® is probably the most well known among all of the online estimators. Zillow uses calculations from public records, tax assessments, building documents and mortgage records. Their formula does not include adjustments for certain features like upgrades to kitchens or even new appliances.
Depending on your area the degree of accuracy can vary widely. Homes located in subdivisions with many recent sales of similar features will have a more accurate estimate of value than homes in more unique areas. Zillow shared a comparison they did of homes in top metro areas where sales were within 5% of the estimated value 62.7% to 92.8% of the time. This being the case they warn consumers that their estimate is just a starting point to finding final value.
How Redfin calculates home values
Redfin creates an estimate of value based on data from multiple listing services. They claim that more than 500 data points are used and they consider things like neighborhood info, what type of view the home has and traffic in the area.
Their software crunches the numbers and they make consistent updates to the value displayed on their site. Unlike the other two, Redfin does not allow you to have input to their data regarding your home that could affect the value. They claim they have the most accurate online estimate, however still post a disclaimer that it is just a starting point in determining actual value.
The Key Takeaway: Computer algorithms can’t beat professional expertise
Online estimates can give you a general idea of a homes value. Your Realtor can fine tune those numbers into a final estimate of value and a suggested price to launch your home on the market. A local expert will take into consideration specific features and upgrades as well as the demand for those features in the marketplace. For the most exact figure of a homes value (and what a potential lender will use) a professional appraisal can be done to squash any remaining doubt.