Dooley Real Estate

Online Valuation
Don’t rest your head on Zillow

by Paul Dooley

We have written a lot in the past year about the importance of having a carefully derived estimate of value of your real property before listing it for sale (read our article Trends in Today’s Market). Pricing your house on the basis of the list prices of similar homes may seem rational, but if all of them are priced at levels that prevailed a year or more ago, you may simply be adding to the growing number of unsold homes that have grown stale. Almost without exception, the houses that are selling this fall are those that were listed at prices that were no more than 10% above the eventual closing price. It takes both effort and judgment to come up with an accurate estimate of the probable selling price of any property. Not only must the appraiser take into consideration the objective facts (size of structure, size of lot, extra features), he or she must make allowance for subjective differences between the subject property and the sold properties used as the basis for the estimate. It is not easy and there is no magic formula that works (using sales-price-to-assessment ratios, for example, can lead one quickly into error).

Lately, we’ve been asked why our estimates differ from values the prospective client found on one of the on-line real estate sites (Zillow, Trulia, Homes.Com). It’s the same question we get when the Town sends out revaluation notices every five years. Revaluation companies, like the on-line real estate sites, create programs that use algorithms to process public-record data, resulting in an “appraised” value for assessment purposes. Assessors and the companies they hire recognize that the process is crude, which is why there is an appeal process by which the homeowner can get the assessment adjusted.

Similarly, the on-line sites work from public record data (MLS databases, assessment records, and recorded sales in the land records). The accuracy of their estimates depends to a great degree on the number and similarity of the sales they collect. While their algorithms may work well in an area of many similar homes (think Levittown), they are notoriously inaccurate in areas like northwest Connecticut where the differences between one sold property and the next are substantial.

For example: On Zillow, we looked at three homes we’ve sold in the past month. The first house sold for $225,000; its Zillow value is pegged at $258,400 and the value range an unhelpful $163,000 to $315,000. The second example is a house which closed last week at $379,300 and is valued on Zillow at $261,500 with a value range of $180,000 to $345,000. The third example is a house in contract for $250,000 which Zillow estimates at $272,700 with a value range of $142,000 to $315,000.

So, while we don’t dispute the utility of on-line research, we suggest that after Googling “abdominal pain” you see your internist before deciding on a course of treatment. And before making an offer or listing a house we suggest calling your broker or hiring a certified appraiser.

Click here to read Yahoo! Finance's article The Fuzzy Math of Home Values.