Are Online Estimates Accurate?
In a recent study, one of the major online estimates services was found to be inaccurate by a national median error rate of 8%.
That means if you are selling a house valued at $500,000 your estimate could be off by as much as $40,000! The scary thing is that in some cities and states, the error rate is as high as 42%.
Is this a big deal for someone selling a home? The short answer, yes! Many real estate agents say that this is a deal killer.
Some real estate agents have done their own studies of accuracy levels of online estimates in their local markets.
Last July, Robert Earl, an agent with Choice Homes Team in the Charlottesville, Va., area, examined selling prices and online estimates of all 21 homes sold that month in the nearby community of Lake Monticello. On 17 sales online estimates overestimated values, including two houses that sold for 61% below the online estimate.
In Carlsbad, Calif., Jeff Dowler, an agent with Solutions Real Estate, did a similar analysis on sales in two ZIP Codes. He found that online estimates came in below the selling price 70% of the time, with disparities ranging as high as $70,000. In 25% of the sales, online estimates were higher than the contract price. In 95% of the cases, he said, "Estimates were wrong. That does not inspire a lot of confidence, at least not for me." In a second ZIP Code, Dowler found that 100% of online estimates were inaccurate and that disparities were as large as $190,000.
So what do you do now? Look at them as no more than starting points in pricing discussions with the real authorities on local real estate values — experienced agents and appraisers. Online estimates are hardly gospel — often far from it.
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What Can You Do About This Problem?
WHAT BUYERS CAN DO ABOUT IT
Search Everywhere and Be Skeptical
Home buyers don’t need to completely divorce themselves from searching through the online aggregator sites. Search to your heart’s content. Just be skeptical of the prices you see. Make sure to supplement your search efforts by using your local agents’ sites. They’ll have direct access to regional MLS listings. Identify properties you like. Talk to an agent and get their insights.
Know What You Can Afford: Get Loan Pre-Approval
Having pre-approved for a loan is incredibly valuable, especially in certain markets. Having a lender pre-approval helps save time because you’ll know your loan limit which in turn informs your property searches.
Pre-approvals give you extra power to negotiate with sellers. They’ll take you more seriously. And you can edge out other buyers who are not as organized and ready to buy.
Stay Cool
Don’t fall in love with one property. Shop prices a little higher than your pre-approved loan amount. See if your real estate agent thinks there might be a shot at bringing the price down to the level you can afford. Maybe your dream home’s online estimate is off by quite a bit – in a favorable direction, of course.
WHAT SELLERS CAN DO ABOUT IT
Stay Calm
Try to downplay your emotions. Don’t get caught up in online estimates. You don’t know if the home value online is high or low yet. There’s very likely still an appraisal ahead of you. In fact, If you’ve made improvements to your home over the years be sure to let the appraiser know.
Look Around
Research your house value on multiple websites.
Visit with a local agent who is a real authority on your local market.
Look at Comps
Look carefully at recently sold homes in your area, comparable homes called “comps” will help you understand the state of the local market. Ask yourself some hard questions about what makes those comps worth more or less than your home. Be honest with yourself.
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