Estimated Values of Homes

armstrongfield.com provides an estimated value on all MLS listings.

If you have ever search one of the many national real estate websites you probably noticed that many times the property has not only the list price, but also an estimated value. The Zestimate provided by Zillow is probably the most well-known one. But how accurate are these “estimators”, or Automated Valuation Models (AVM as they are know in the industry)?

Let’s look at how they arrive at the values they place on homes. All AVM’s pull information from public records such as assessor’s records, which in itself, is not known for its accuracy. Some of the better ones (like the one REALTORS use call RPR) also pull data from MLS, registry of deeds and other sources. This information gets put through a proprietary algorithm that sorts and calculates the property’s value, weighing some factors more than others. These algorithms are tightly held equations that vary from each other depending on the company, and are constantly being tweaked to hopefully increase the accuracy.

How accurate are AVM’s? Zillow posted on their website that their Zestimates for the Boston area are off 5% or more of the sale price 47% of the time. They are off by more than 20% of the sale price about 10% of the time. It’s scary to think that people who are selling (or thinking about selling) their home base their asking or list price on these.

So what good are AVM’s if they are so inaccurate. Well, they offer a good starting place for someone who is performing a market valuation. REALTORS create what is called a Comparable Market Analysis (or CMA). They find similar properties that have sold and compare the subject property to them. It starts off similar to the Automated Valuation Model except they handpick the comparable properties. Next, they make adjustments for the square footage, # of baths/bedrooms, whether or not it has a pool, garage, central AC and other amenities, and the condition of the property. There are many other factors that go into the CMA – upgrades, exact location, etc. The AVM’s can’t come close to the valuation accuracy that a REALTOR can provide because the software has not seen the inside of the house, doesn’t know the condition or any number of other factors that influence market value.

So enjoy AVM’s or “Estimated Values” but don’t take them too seriously. They are a good way to watch trends in home values over the long term.

Questions? Comments?

Jim Armstrong

If you would like an accurate valuation of your home, go to:
https://www.armstrongfield.com/app/instantevaluation/template/armstrong/