Has Mr. Zillow Seen Your Home?

The Pros and Cons of Online Evaluations

By MICHAEL EDLEN | Special to the Palisadian-Post

“12 Awesome Websites That Quickly Estimate Your Home’s Value” sounded very appealing to a local resident recently. He took the time to research his home’s value and then called me to help him reconcile the differing online estimates, which ranged from $4 to 7 million.

Whether to put their home up for sale was dependent on its value, and they had assumed Zillow would be the most reliable at $6 million because they heard so much about it. Yet Realtor.com suggested a value of $4 million and Redfin estimated nearly $7 million. The other sites varied in between.

Of course, knowing one’s home value matters for several reasons. The home is the largest asset for most people, and if one is thinking of selling, refinancing, borrowing against its equity or doing estate planning, it would be critical to know the value.

It can be somewhat seductive to feel that you can get an estimate online in just a minute or so—no information is required other than to enter the property address on most of the sites. Although the computer-generated models have improved over the last few years, the potential magnitude of error in some cases is obviously high.

It was rather ironic several years ago when the CEO of Zillow sold his own Seattle home for 40% less than the Z-estimate Zillow came up with. Their chief analytics officer was quoted as saying, “The fact is that we missed, and there are empirical reasons we missed … .” He cited the property’s irregular shape and location on a busy road as partly responsible for the inaccuracy.

The typical factors that go into determining an online home value estimate include: the location, square footage of home, number of bedrooms and bathrooms, property tax, and recent sales of relatively nearby other properties. The various online systems can be fairly accurate in the vast majority of neighborhoods of the country because there are often a large number of very similar homes and lots, with enough relatively recent sales to assure a homogeneous set of data.

However, this is usually not the case in areas such as the Palisades, Brentwood or Malibu. For example, in these areas, the magnitude and quality of views can easily make a million-dollar difference in valuation.

Zillow’s senior economist noted there is a “classic luxury homes problem,” leading to the site not being able to take into account “non-quantifiable facts” such as layout design, etc., and that these factors can have much more of an effect on the values of luxury homes than less expensive properties.

Of course, there are many other things these systems cannot take into consideration that might significantly impact a home’s value. Some of the greatest inaccuracies and inconsistencies arise from database errors regarding the size of a home. For example, it is not uncommon for an older place to be expanded after many years. If public records do not correctly reflect the new size, the calculations will under-value the property.

Sometimes recent sales of properties are included from relatively nearby but totally different neighborhoods (which Mr. Zillow would not know of) and could throw off values by a large measure.

An independent appraisal is a far more accurate way to assess probable current value of any property. The appraiser will review actual nearby most-comparable sales, and their assessment will usually be quite accurate.

The most accurate way to value property is to have an experienced local real estate expert put together a Comparable Market Analysis. That agent would also be able to apply their experience and judgment about the value of some less quantifiable features as well as current market supply and demand conditions in that neighborhood. It is through this process that the most accurate value can be assessed before putting the property on the market.

According to Trulia, their home estimations of value have a median error rate of over 5%, with 18% of the homes nationwide having sold for 20% more or less than the original evaluation. In an area like Pacific Palisades, where home average price is over $4 million, this could make a difference to a seller or save a buyer as much as $200,000 to $500,000.

Michael Edlen has been ranked in the top 1% of all agents in the country and has evaluated more than 2,800 properties. If you would like to know approximately what your home may be worth today, Edlen can be reached at 310-600-7422 or michael@edlenteam.com.