Understanding Industry Tools: You’re likely to get a warm, fuzzy feeling if you look at what your home is worth on Zillow, Trulia or any of the other real estate sites that provide values for millions of houses. Home prices have risen rapidly, and the value these sites assign to your home is sure to reflect that. But don’t get carried away by a single Zestimate, SmartZip quote or Trulia estimate. While they are fine for spotting trends, these home valuation services come with a caveat: They offer rough approximations by computer programs. The sites use what’s called automated valuation models, or AVMs, to make sense of mountains of data, typically drawn from recent sales, property history, size and number of rooms, market trends and other factors that influence price. But while not reliable for determining the precise value of a particular home, the services do a decent job of capturing the overall trends in prices, which gives you a sense of how your particular house fits in a neighborhood. To illustrate the point we looked at Zillow, Trulia and ZipRealty values on a home in Santa Clara, Calif., that sold in late October 2013 for $601,000. Zillow said it was worth $615,000, Trulia said $743,000 and ZipRealty said $629,000. Remember: The AVM is just an automated valuation model for any given home. Because it’s automated, it’s really subject to whatever the details are that make up that model. Simply it is nothing more than an algorithm. Zillow, the online website that pioneered free home valuations for consumers, refreshes its data on 100 million homes three times a week, using “hundreds” of different models, said Katie Curnutte, director of communications for Zillow. “We provide a value range,” she said. “The house will sell somewhere in that value range, depending on the condition. It is a starting point; it’s not an appraisal. We can’t go into a hundred million houses every week and check them out. We don’t know if you added a bedroom or remodeled a kitchen, or you’re letting the roof go.” Zillow and Trulia provide figures for the accuracy of their estimates. According to Curnutte, Zillow measures accuracy every three months by comparing houses that sold to their Zestimate value the day before they sold. “Nobody thinks a computer is going to be able to tell you completely accurately what a house will sell for tomorrow.” CoreLogic, which has developed a variety of valuation models it sells to the lending industry, investors and others, cautions that the popular sites that provide free estimates to consumers have their limitations. “If you just put in a marble or hardwood floor and a lot of upgrades, the AVM is not going to be able to take that into consideration,” said Ann Regan of CoreLogic. “It’s not intended to replace an appraiser, and for lending purposes it cannot. Somebody has to come out to make sure it’s still standing and has a roof on it.”
Posted on: Fri, 07 Mar 2014 15:00:02 +0000
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