What You Need to Know About Those Online Home Value Estimates
It’s something every homeowner does when they decide to sell:
Obsessively check the estimated home value of their property on the websites of the big real estate “brands.” Opendoor, Zillow and Redfin have made it easy to give an idea of what to expect when offers come in — and a peek at what the homes of your neighbors, friends, and family are worth, too. Estes Park Team Realty has their own pricing tool on our website. Is it accurate – probably not.
These valuations primarily rely on algorithms or linear regression formulas to arrive at a number. These algorithms calculate a range of data points that affect value. Sounds simple, right? If you talk to the new Larimer County Assessor, he will tell you that’s exactly where it gets complicated. He made the front page of several newspapers in the area and in fact, was responsible for selling a lot of newspapers.
Understanding What Goes Into an Algorithm
Every brand’s algorithm is different. There are hundreds (maybe even thousands) of different data points that influence the price of a home: Interior/exterior features, the age of the home, the square footage, and the location, just to name a few.
Even if each brand included the same data points, the algorithm would weigh them differently. After all, some factors are just more important to a home’s price. Stainless steel appliances won’t affect value as much as square footage. Yet square footage might not matter as much as the neighborhood.
Both of these elements of an algorithm come into play with comparable sales, a critical part of any home evaluation. In order to find the prices of recently sold homes that are similar to yours, the algorithm needs to find the properties that fit the bill, then evaluate those properties against yours.
While algorithms are kept secret for a reason, the big brands have been somewhat open about some parts of their processes. Here’s what you need to know:
How Opendoor Calculates Home Values
First, Opendoor is upfront about the goal of their calculations: To buy your home. Instead of thinking of it as a home value, it’s really an offer.
Opendoor does utilize a data model to come up with a number, the process starts with what you tell them about your home’s condition, features, and updates. There are options for submitting photos of your home in order to back up what you’ve told them, but it’s really about what you can tell them.
Using this information, Opendoor runs their data models on comparable homes that recently sold and local market trends. The algorithms that involve local data were reviewed by pricing teams who have some knowledge of the area. Opendoor also says the algorithms consider the difference in the time of year between comparable home sales.
Though Opendoor will follow up with an in-person condition assessment, it’s worth reiterating that their initial estimate seems to be based on a homeowner’s word. If you’re looking to this service just to get an idea of what your home could sell for, be aware that the offer is only as good as the information you give.
How Zillow Calculates Home Values
A Zillow “Zestimate®” is perhaps the most well-known of the big brands. Though it’s noted that this value isn’t to be considered a replacement for a market analysis, this figure is what many people think of when they’re talking home values.
Calculations depend on publicly available information, like past sales, mortgage records, tax assessments, and building documents. The formula doesn’t consider the “intangibles,” upgrades, or even new appliances. While you have the ability to update info about your home and correct inaccuracies, only information deemed significant will change the value.
If your area doesn’t include a lot of information in public records, or if your region doesn’t have a lot of transactions to analyze, it’s harder for the algorithm to arrive at a value.
Accuracy can also differ depending on the market. A comparison of top metro areas by Zillow shows that the home value was within 5% of the final sales price 62.7% to 92.8% of the time.
My husband is faithful from 62.7% to 92.8% of the time – I’m good with that. I don’t think so. Why would you risk the value only being 62.7% correct? Spencer Rascoff Zillow’s CEO, February 29, sold a Seattle home for $1.05 million, 40 percent less than the Zestimate of $1.75 million shown on its property page a day later.
Due to these factors, Zillow is pretty open about how their figures should be considered as a “starting point."
How Redfin Calculates Home Values
The “Redfin Estimate” of your home draws on data found in multiple listing services to arrive at a value for your home. Redfin mentions that more than 500 data points are considered, including market and neighborhood info, whether the home has water views or if its located on a busy street.
Machine-learning software crunches the numbers frequently: The values are updated daily for homes on the market, and weekly for those off the market. Unlike Zillow, you can’t update any info about your home that could potentially impact the value.
Though Redfin says that their online home value estimates are the most accurate, the service still says that it’s a starting point.
The Takeaway: Computers Don’t Know Estes Park
While these online estimates can give you a general idea of your home’s value, algorithms don’t work in Estes Park. We don’t have neighborhoods of 300 to 2,000 homes built by the same builder with three different basic floor plans. We do have the 30 acres purchased by mom and dad in the 1940s with a cabin on it and a terrific view of Longs Peak. That 30 acre was subdivided into three ten-acre parcels for the children. The oldest got the cabin. One child built their home on their 10 acres in the ’60s and the last child built their home last year. We have a 1940’s remodeled cabin, a 1960’s house, and a 1999 house all on 10 acres with the same view of Longs Peak. These homes will obviously have different values. Do you think an algorithm can take that into account? Algorithms work well in subdivisions in communities developed by the same builder over a two or three-year span. We don’t have those in Estes Park.