Valuations on Zillow, Redfin, Chase are all over the map, sometimes varying 20% or more — how these tools both help and hinder buyers in an unpredictable housing market
Despite all the data points crunched and algorithms used, the three biggies in the world of home valuation — Zillow, Redfin, and mortgage giant Chase — demonstrate so much disparity that you might think you were comparing a suburban McMansion to its humble tool shed out back.
Why are CMAs better than online estimators?
CMAs are in-person assessments performed by a local real estate agent, while online estimators rely on an algorithm.
Both CMAs and online estimators use recent comparable sales (“comps”) to determine your home’s value. But a realtor can handpick comps that are far more similar to your home, which results in a much more accurate home value estimate.
A realtor handpicks properties based on quantitative and qualitative factors.
They can account for factors that algorithms struggle to measure or don’t include in evaluations, like:
- Whether your house has a desirable view or is on a busy street
- The nuances of what buyers are looking for in your local market
- Photos on the multiple listing service (MLS) that give insight into other homes’ conditions
- Whether other home sales included buyer concessions, which might result in a different sale price than what you could get for your property
A realtor’s experience and local market knowledge almost always make their CMAs more accurate than an online home value estimator.
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Much like trying to predict the ever-changing weather forecast, pinpointing — with accuracy — the value of your home using an online estimator tool can be a futile undertaking.
Despite all the data points crunched and algorithms used, the three biggies in the world of home valuation — Zillow, Redfin, and mortgage giant Chase — demonstrate so much disparity that you might think you were comparing a suburban McMansion to its humble tool shed out back.
These sites typically use a combination of public and user-submitted data for its formula. However, there are plenty of discrepancies when using all three platforms. As a result, the most vital part of selling your home — its value — is ultimately up in the air.
It’s all a recipe for chaos on the home front. To illustrate this point, we take a look at one specific listed property in Chicago’s cozy Horner Park neighborhood.
When home values are all over the map
Home value estimator tools also don’t accommodate for how some sellers seize huge opportunities that elude the online tools — such as taking into account major renovations or newly added nearby amenities, such as waterfront parks.
For example, CNN reported on a Tacoma, Washington, home that had a Zestimate of $658,000. But when it went on the market, the home listed for $950,000 — a whopping 42% above Zillow’s ballpark estimate. This was due largely to the renovated home interior and waterfront location.
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Another home in question resides on North Mozart Street and was sold to its current owners for $750,000 in 2017.
Built in 1915, the current estimated value of the renovated 3-bedroom, 3.5-bath home has appreciated by at least 18%. Three home estimator tools agree on this much. Yet, one outlier says the property is actually worth less.
On one end of the spectrum, Zillow’s Zestimate says the value is at $1,002,900 as of mid-July — more than 40% above the 2017 purchase price. Meanwhile, Redfin pegs the estimated value at $942,976 during the same period.
However, Chase arrives at a more conservative number: $881,800. It should be noted, though, that this estimate comes with a comprehensive neighborhood map with nearby home prices listed.
Arguably the most accurate site, Realtor.com states the home is now valued at $877,300 as of mid-July. It partners with three different data companies to paint a more comprehensive picture — although one of those companies, Collateral Analytics, reports the baffling low figure of $681,431.
The accuracy of home value estimator tools has become such a topic of debate, in fact, that a group of Chicago homeowners once sued Zillow over their allegedly inaccurate estimates. Although the federal case was ultimately dismissed in 2017, homeowners were no doubt still left frustrated.
So, why are there so many notable discrepancies between the estimator tools? According to real estate website Home Bay, different pricing models are responsible.
Unfortunately, for buyers and sellers, the precise methodologies of Zillow and Redfin, for example, “are kept under lock, key, and non-disclosure agreements, so no one except for Zillow and Redfin employees understands exactly how they work,” according to Home Bay.
Typically, though, estimators use local real estate databases and records for past sales, taxes and user-submitted data.
Zillow’s error rate is even worse than it looks
Median error rates are a bit misleading, hiding the fact that home value estimators are often way off.
Here’s why: Only 50% of homes fall within the published median error range. The other 50% of homes will have an even higher error rate. If you put your off-market home into Zestimate, there’s a 50/50 chance the home value will be off by more than 7.49%. (For a $500,000 home, that means more than $37,450.)
Zillow Zestimates rely on the multiple listing service (MLS), tax records, and user-submitted information to complete its Zestimates, which are frequently inaccurate.
Like other home value estimators, recent upgrades or renovations likely won’t impact your valuation (unless they’ve been reported on your property’s tax records).
Home value estimator tools also don’t accommodate for how some sellers seize huge opportunities that elude the online tools — such as taking into account major renovations or newly added nearby amenities, such as waterfront parks.
In addition, prospective sellers can, in fact, tweak estimates before their homes ever hit the market by updating property information. If you followed the story about the Tacoma home, you’ll know that it’s savvy to update appliances and make major renovations that can propel a home’s value when you choose to list it.
Here are some tips on preparing your home to sell.
Posted by Cary W Porter on
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