Homeowners who attempt to find out the value of their home using online algorithms such as Zillow's Zestimate feature often find that these tools are inaccurate. For real estate agents, it's part of their job to inform clients that home valuations aren't always the most accurate for any particular home.
Data scientist Karen Belita, writing in the Economist's Outlook blog, which is run by the National Association of Realtors, recently offered a few tips on how real estate professionals can broach the subject. She said that Automated Valuation Models (AVMs) such as Zestimate employ algorithms that take into account thousands of data sets on properties and their values. "They take different sets of property data and look for patterns and relationships between property value and the input data," she said.
The benefit for consumers is they can quickly get a home value estimate just by entering a property's address.
While this can be useful if treated as a general guide, consumers need to be mindful that these assessments are not entirely accurate, and certainly shouldn't be treated as a substitute for a professional appraisal. Indeed, genuine appraisers use both comparative market analysis and their own expertise and knowledge to conclude the property's true value.
AVMs also fail to consider the unique qualities of each home, its neighborhood and the local market.
Zestimates, for example, rely on public and user-submitted data but this has "different accuracy levels depending on the data of the property and location," Belita said.
A second tool offered by the NAR itself is the Realtors Property Resource. This tool provides two separate value estimates, including one using its own AVM model and a second that uses the Realtor's Valuation Model, which uses data from the AVM and also MLS listing data to try and make the home valuations more accurate.
“As technologies advance and more data becomes available, the number of sites that provide home value estimates may grow,” Belita wrote. “With the knowledge of where to find home value estimates online, it is important to note that these home value estimates are not interchangeable with formal appraisals, comparative market analyses, and they cannot be used as a basis for a loan. Most of these sites, if not all, reiterate the importance of consulting the expertise of real estate professionals to receive an in-depth and in-person analysis of the property and the local market.”