January 11, 2014

Online Realty Pricing Sites: Do They Work?

Yes, they work. But are the prices valid? That’s another story. Let’s listen in as the San Jose Mercury News (motto: We’re a newspaper just like Burbed is a real estate blog, haha!) explains why the valuation models don’t agree with each other.

Online sites can help tell you what your home is worth

141010-avm-unioncityBy Pete Carey, San Jose Mercury News
POSTED:   12/27/2013 05:00:00 PM PST; UPDATED: 12/28/2013 06:17:12 AM PST

You’re likely to get a warm fuzzy feeling if you look at what your home is worth on Zillow, Trulia or any of the other real estate sites that provide values for millions of houses. Home prices have risen rapidly, and the value these sites assign to your home is sure to reflect that.

But don’t carried away by a single Zestimate, SmartZip quote or Trulia estimate. While they are fine for spotting trends, these home valuation services come with a caveat: they offer rough approximations by computer programs. If you want a more precise estimate, hire an appraiser, talk to a real estate agent or check around your neighborhood and see what homes are selling for.

The sites all use what’s called "automated valuation models," or AVMs, to make sense of mountains of data, typically drawn from recent sales, property history, size and number of rooms, market trends and other factors that influence price.

We can’t believe they spent all that trouble writing an article that says, “If you want to really know what your house is worth, hire an appraiser.” There are multiple models out there, but this piece won’t tell you how they differ, or why. We did learn that Santa Clara County prices are more likely to be correct than Alameda County, but again, no explanation why.

We know why!  It’s because the Real Bay Area’s prices only go up, and all the models built that in.  Feel free to speculate on what’s going on with the AVM of your choice and why your house is So Special that the price estimates are Way Too Low.  Unless you’re buying, in which case they are Way Too High.

Comments (5) -- Posted by: madhaus @ 7:11 am

5 Responses to “Online Realty Pricing Sites: Do They Work?”

  1. Scott Lamb Says:

    The funniest idea here is that an appraiser can tell you how much your house is worth. In reality, appraisers are people mortgage brokers hire to generate a bunch of cover-their-ass paperwork that claims the house they are about to use as collateral is worth exactly what you already bid, not a penny more or less.

    If appraisers really were in the business of independently assessing market value, they wouldn’t need to know your bid to produce their answer. Show them a house that wasn’t just on the market and they’ll be completely lost.

  2. Real Estater Says:

    I find that these valuation sites are generally in the right ball park for estimating track homes where homes within a neighborhood are very similar. Their algorithm falls apart for places like Palo Alto and Los Altos because every home is different. Many homes have also been extensively remodeled or altered over the years, so even what was originally a track home neighborhood would have great diversity by now.

  3. Steve Tyler Says:

    Did Zillow exist in 2007? I’d love to see their predictions for the future back then.

  4. SiO2 Says:

    Zillow did exist in 2007. However, they have changed what they published for zestimates at that time. e.g. a house that on June 1, 2008 had a zestimate of $1,500,000 might now show that the zestimate was $1.4m or $1.6m depending on sales that happened later on.

    Lame!

    Madhaus, nice to have you back.

  5. madhaus Says:

    Thanks, SiO2.

    I also have noticed Zillow restating prices years later. I know dang well what my house peaked at in 2008, and Zillow now has different (lower) numbers for then.


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