I am often asked about the accuracy of free online home value websites such as Zillow.com, Domania.com, etc. While these sites likely represent a starting point for satisfying one's curiosity, I strongly caution against relying on these sites for any buying or selling decisions.
The folks at Zillow.com are pretty bright. They realize the average internet user tends to gravitate toward sites that make them happy. Zillow has made millions of users happy by providing values that users like, but that just are not reflective of current market conditions.
While Zillow is the most widely recognized home value service, it is far from the most accurate. The truth is, there is not much that is groundbreaking about the technology associated with Zillow and their online competitors.
Known in the lending world as Automated Valuation Models, or AVM, the utilization of complex formulas for determining broad-scoped property values has been around for years. The most accurate AVM services however cost money and therefore are not utilized by the average consumer. Because Zillow offers its services to the consumer for free, the AVM service they utilize is often far from accurate.
AVM's are inherently flawed. These services pull their information from public record sources, which are often inaccurate. The machines that run the online web sites have never been in your house or in your neighborhood. Nor have they looked at the scenery around your home or looked out your windows at the spectacular view that you have. They also have not noted your upgrades or measured your home; changes that which the public records don’t record immediately or at all in some cases. As any real estate professional will tell you, there are just too many variables not considered by Zillow and other AVM services.
Another huge factor in determining property values is housing market trends. With the exception of a few of the most detailed services, most public AVM’s like Zillow.com and Domania.com are even less accurate when home values are trending up or down at rates above historic levels. Where I live in Arizona, the current Maricopa and Pinal County housing markets are extremely fluid and in some segments change monthly. By relying solely on historic sales activity - without considering active listing inventories, foreclosure rates and average exposure times- you are more likely to receive misleading information in today’s environment than in most previous periods.
To illustrate the disparity that can occur among an online value versus an appraised value, I ran three different properties in Maricopa County through Zillow. First, I ran a typical tract home in a newer outlying community with several different builders. This development has been hit extraordinarily hard by the changes in market conditions and property values have dropped significantly over the previous one year. Unfortunately, Zillow appears slow to reflect these trends as the value provided by Zillow was well above several active listings with similar square footage and similar features at the subject address. In my estimation, the value provided by Zillow was overestimated by by at least 15%.
Secondly, I found an older home in a Scottsdale custom community that is surrounded by newer, higher-end properties. It appears that the Zillow valuation overemphasized sales of these higher-priced homes within a short distance, while failing to include consideration for other truly similar older homes slightly further away. In my estimation, Zillow overstated this value by at least $200,000.
Lastly, a property in Phoenix near the Paradise Valley area was overestimated by Zillow because Zillow utilized home sales almost exclusively from Paradise Valley. Obviously a property simply near Paradise Valley would not demand a premium such as one that is in the Paradise Valley town limits.
As Zillow maintains on their own website, there is just no adequate substitute for the professional expertise of a Realtor or Certified Appraiser. Professional Realtors, with localized experience, often have the benefit of an intimate knowledge of each sale and listing in your area, likely having seen the inside of other listings and sales in the area. Realtors often have access to buyer/seller circumstances that may have impacted a sale which can often lead to a more accurate assessment of the relevance of these sales and can be invaluable in developing an appropriate list price.
Certified Appraisers are important in gaining an accurate home value as well. Appraisers can provide the most accurate square footage with actual field measurements. Further, appraisers are completely unbiased and should be free of any outside influences, providing a true neutral perspective on the home’s value. Appraisers, as opposed to a computer model, have a more immediate understanding of market trends specific to a market segment and will be better positioned to note market changes in establishing value.
The unique skills of both Realtors and Certified Appraisers are complimentary. Together, their input can lead to a more accurate assessment of current market conditions, exposure/marketing times and specific market forecasting - all of which can lead to a more reliable conclusion for you, the homeowner.
