What happens during the appraisal?
The primary purpose of the appraisal is to determine the value of a property using similar properties called "comparables."
There is no shortage of web sites that claim to know the value of a home. Zillow, Redfin, and REALTOR.com all profess to discern how much a home is worth with nothing more than an address. Customers of Team Emily Caryl Ingram enjoy a complimentary subscription to Homebot, a site that closely monitors home value and equity. So how accurate are these numbers?
Emily’s House
Zillow = $570,200
Redfin = $508,631
Realtor = $457,700
Homebot = $627,000
A quick scan of the Interwebs for Emily’s house reveal values from $457,700 to $627,000. So which site is to be believed? These estimates are simply that, an estimate of a home’s value. The estimates are not an appraisal. And they’re certainly no substitute for a Comparative Market Analysis from a local REALTOR®. Redfin admits, “The Redfin Estimate is based on what we currently know about this home and nearby market. The Redfin Estimate is not a formal appraisal or substitute for the in-person expertise of a real estate agent or professional appraiser.”
How do these sites come up with these values? They don’t tell us. We can only assume their algorithms incorporate public records, multiple listing services (the database that REALTORs use to list and sell properties), comparable sales, market trends and data submitted by homeowners.
How accurate are these estimates?
The accuracy of a specific value estimate depends entirely on the data received about that property – data that may or may not be accurate or timely. Zillow publishes their own accuracy estimates nationally, by state, and by county. Nationally (as of May, 2021), Zillow boasts a median error rate of 1.9% for homes currently listed for sale and 6.9% for off-market homes.
In Jefferson County, WA, a Zestimate for homes currently listed for sale is:
- within 5% of the actual sales price 29.0% of the time,
- within 10% of the actual sales price 53.0% of the time, and
- within 20% of the actual sales price 80.1% of the time.
For the record, the Zestimates are far less accurate than they were when I first reviewed these numbers five years ago. According to their own data, Zillow is getting worse at estimating value instead of better!
What’s missing from online estimates?
The human touch. An online estimate can’t tell you the condition or marketability of a property. REALTOR.com doesn’t know that the dog across the street barks constantly or the kitchen still boasts avocado green appliances.
A home’s location and style also factor into its value. And that value isn’t the same for everyone! A home buyer who is a master gardener might place a lot of value on a one-acre lot. But a busy professional might see nothing but a pesky lawn that must be maintained.
Online estimates also rely on public and user-submitted data. And that data isn’t always accurate. In fact, an inaccuracy once appeared in my own home’s Zillow listing! A REALTOR® reported to Zillow that they’d sold my home (news to me!) when they actually sold the house down the street.
In addition, all of these sites don’t have a direct feed to the multiple listing service (at least, not in this area), the computer system that real estate professionals use to list property for sale. Some mine data about listed properties from other web sites. It’s not at all unusual to see homes listed for sale on Zillow that actually sold months ago. Or the opposite issue can occur. Just last week, I was looking for a property that I knew was listed for sale because a REALTOR® sent me the listing. And it wasn’t showing up on Redfin.
You also don’t know how recently the site updated their data. It’s not unusual for a customer’s Homebot estimate to be significantly lower (or higher) than the price they just paid for their home. The fact is, they’re just computers. The computer can’t tell whether your house should be valued higher because you have an amazing view. Or whether your home should be valued lower because it’s next door to a hoarder.
And value is dynamic, even when it’s a human appraiser. A human appraiser calculates value by comparing your home to “comparables.” Comparable homes are those that are similar in size, style, and age, that have sold in the last six months, within a one-mile radius (ideally) of your home. Different homes are selling all the time so those comparables (and thus your home’s value) are constantly changing.
So use online value estimates as a jumping off point. But don’t place too much stock in them. A true estimate of your home’s value is best determined by your local REALTOR®. And at the end of the day, the value of a home is the price a buyer is willing to pay for it.
