Online Home Values - Trick or Treat?

Most home buyers and sellers use online tools during their home search – and with during I mean even when working with a Realtor, they look up comparables (“comps”), search for homes they have not been shown and research home prices.

All these habits seem to be quite addictive to consumers, but they are not problematic as long as the seller/buyer uses a trustworthy Realtor.

And actually trusts that Realtor.

That can manifest itself in many ways:

• for instance by asking the Realtor why s/he did not include a specific comparable that would conveniently in/decrease the value (typical answer: “this house is not a good comp, because it is 800 sf smaller, not on the water and not remodelled." Or similar)
• for instance by asking the Realtor about homes the client found but the agent didn’t show (typical answer: “because you said you must be able to dock a 107 feet boat, and this house has only 45 feet on the water”)
• or by asking the Realtor if the market analysis (“CMA”) is really on target, since valuation website X shows a totally different value (typical answer: see below). 

The last item is a special point of contention for many persons on the other side of the transaction table. E.g. when a buyer throws a Zestimate® into the ring, the agents must educate and inform, and not brush the issue aside.

For three reasons, home valuation sites such as Zillow should show a large blinking neon sign "Use With Extreme Caution":

• they apply an undiclosed algorithm to come up approximate values, but without factoring in curb appeal, renovations or conditions,
• laypersons often mistake them for gospel,
• and they are very often very wrong.

If you raise your hand and point out that mine is a typical Realtor argument: You are correct.

Let me explain. To make my point, I randomly picked three homes in different price ranges which sold in South Florida in the last week.

• Example 1: a 4 bedroom/4 baths 2,350 sf home which Zillow states is “off market”. The zestimate® is $1,425,698. The house actually sold on 3 April for $1,750,000; it was listed for $1,795,000. The actual selling price is 17.8 percent over Zillow. 

• Example 2: a 3 bedroom 2 baths 2,060 sf home which Zillow states sold for $315,000. The zestimate® is $434,935. The house actually sold on 9 April for $290,000; it was listed for $315,000. The actual selling price is 33.3 percent under Zillow.

• Example 3: a 6 bedroom 7.5 baths 6,610 sf home which Zillow states is “off market”. The zestimate® is $ 5,216,559. The house actually sold on 3 April for $10,900,000; it was listed for $12,500,000. The actual selling price is double that of Zillow (101.3 percent to be precise). 

So with values that much off, can you trust online estimates?

I answer with a question: If as your Realtor I miscalculate your list price or purchase offer by 18%, 33% or 100%, would you fire me?

And that is the take-away – do use every tool available (by the way, realtor.com is a much better source for real estate than any other consumer site). But at the end of the day, a good Realtor-generated CMA will hardly ever be beaten by an automated valuation tool.

If you think you smell a money-making scheme: Not so. Typically a Realtor doesn't get paid up-front or even for a CMA. In contrast: a Realtor doesn’t see any money if your deal doesn’t close, so his/her motivation is to get things right.

What is your experience?