I ran several value estimates of my home a couple mornings ago after reading yet another mind numbing story on the fallout of the credit crisis in the USA Today. I am not planning to sell but I am trying to determine the fate of online home value applications.
Just take a look at the results:
Zillow: $754,280
Cyberhomes: $624,910
Coldwell Banker: A range of $585,000 to $715,613
So here we have a $200,000+ spread.
Before composing this blog I contacted three respectable agents I know and asked them each for a Realstimate – you know, a well informed, thoughtful measure of my home’s value. Their ranges went between $850,000 and 1.1 million.
In total, I now have a $500,000 range of opinion.
Considering how all these applications use past home sales as part of their special estimating sauce, it is entirely possible that they are now worthless applications given the seesawing interest rates and dearth of qualified buyers creating significant homes price reductions all over the USA.
I welcome folks from of each of these firms to weigh in here and honestly address the precarious viability of their platforms and their inability to account for a volatile market where even seasoned Realtors can’t do any better than a $200,000 spread.
– Davison
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Hi Marc, it's David from Zillow,
Since the Zestimate was closest to the experts' opinions, the lesson here is obviously "trust Zillow"
Seriously though, all valuations – both manual and automated – become increasingly challenging when markets change. On average, we hear about new sales transactions 3 to 4 weeks after they close and new Zestimates are published weekly. Even in a volatile market that's not bad latency especially when you consider that the favorite comps which so heavily influence a seller's list price will often be 3 to 6 month old transactions.
There is no substitute for a detailed on-site estimate by a local expert but I think there is at least one argument to be made for the benefit of AVMs in a downturn. Algorithms have no pride and no interest in appreciation. So an AVM will often correctly "re-price" long before a seller will recognize that they need to.
Last month 4.4 million people checked Zestimates and traffic to the site has been steadily increasing even as the RE segment has declined online. In a volatile market, homeowners and first time buyers will seek more opinions of value – just like you did.
On a macro level, our Zindex trend reporting has generally proved quite viable in accounting for the downturn in the market and the Zindex in fact first saw a drop in the median market value of US homes in Q4 '06 whereas a decrease was only seen in the median value of sold homes this past qtr. I highly recommend that investors consult the quarterly Zindex reporting as another source of home value trends: http://tinyurl.com/2xhnpf
Hi Marc,
Thank you for the opportunity to comment on this. As CB’s technology partner for their HVE product – a product specifically designed and integrated into a broker’s website rather than conceived for a direct to consumer distribution play – our tool is designed somewhat differently from the others you mention.
First and foremost, we are very upfront about the limitations of any automated estimation platform particularly in a volatile marketplace. We work closely with our clients to position the HVE as a “first step” – a possible indication of value – that must be followed up on with a professional who can assist in navigating the very murky waters you’ve exposed in your insightful post and questions. You can see this conceptual framework clearly by our refusal to provide and exact value. Who can possibly tell you exactly what your home is worth (other than the buyer who signs a contract for what is, ultimately, your home’s negotiated value).
If one likens this to Wall Street trading ranges, there IS value in focusing on the variability of estimates, the width of the value range as a percent of total price, and volatility. Focusing on this inherent uncertainty should help consumers ask industry professionals important questions about where the market is likely to go and when is the right time to price a home. As much as most Americans would like to think of the housing market as a “sure thing”, recent events should remind everyone that this is a speculative market and, much like a good stock broker, one of a Realtor’s responsibilities is educating their client and helping them manage risk.
We are about to rollout a significant upgrade to our system which should become visible on the CB website in the next few weeks. This updated system will also power a new HVE feature in our popular Navigator Platform content solution for Brokers. Among other changes, we now incorporate our “volatility” index which is taken into account in the estimate. This index is based on a number of factors including external conditions such as changing mortgage rates and is correlated to scores of underlying statistics and variables at a very local level.
Of course – if folks are determined to point out that none of these estimates will never be “truly accurate”, we agree 100% and hope that we (and our clients) have positioned the product on their sites to make this clear and obvious to end users. If you are serious about selling you home you will need many more inputs than an automated HVE to set a realistic price.
Thanks again for the opportunity. If you’d like access to our new system to run some tests, please let me know.
- Pete
OnBoard LLC
Truly GOLDEN this blog and comments are truly a perfect example of what a blog should be.
On the valuation discrepancy: Many homes don’t comp well. They may not be production homes; there may be other vintage variables like remodeling and location variables like orientation / view issues that are very subjective. But 200K +/–a 30% or so swing is absurd. Further, what is true today is the recent sold comparables aren’t a complete reference, or predictor. You have to factor in the pace of activity (absorption rate = like # selling each month in your market) and projected # of month supply (the number of active competing like-homes times the absorption rate). That gives you a more 3 dimensional look. Looking at the list-to-sales-price ratio can also be a good indicator for competitive positioning. By the way the L/P ration is almost always in the 2 to 5% rangean amazing testament to the efficiency of the residential market. In other words, when homes are priced outside of what I call ‘the trading range’ (L/S ratio) they don’t generate offers; they don’t sell.
However, where the rubber hits the pavement is that ‘buyers buy by comparison’I like to say, whether it’s ‘cars, toaster, houses, spouses’. So your ‘guiding light’ in pricing is to get inside the mind of your target buyer. To do that you have to physically ‘see’ the competing properties and become familiar with the ‘tradeoffs’ that a buyer would likely employ in looking in that market segment. So it’s not just ‘solds’ but ‘actives’ that playespecially today when you could be below the sold comps and not sell for reasons you’d never get to without an analysis of the active competition. Add to this a solid knowledge of the amenities and idiosyncrasies of the area. For example, in one of our communities the properties closer to the community center with its amenities tend to sell more quickly and for more. The point is you would probably never get to that without experience in that market. It doesn’t show up in the data per se!
I could go on. Bottom linethere is a range that’s within 5% that your house will sell for. And that range can be established with some confidence by agents that know what they’re doing. One thing for sure, you can’t get there just on paper with any confidence visa vi a Zestimate or an agent that doesn’t do a thorough job of the field work.
Did anyone give you an estimate of days on market at any of those prices?
You should also tell your audience that there are only 53 Single Family homes for sale in San Luis Obispo between the price of $700,000 and $1,000,000, and that San Luis Obispo is among the top 100 most desired places to live on the planet.
If you restrict your search to only show homes over 2000 square feet, there are only 26 available homes.
Your local REALTOR who knows the inventory probably knows that many of the listings between $700,000 and 850,000 are not as nice as your home. Knowing you, I suspect that you home is more than 2000 sq ft and is nicely pimped out!
I would suspect that if you listed it at $700,000 you would close in 10 days and likely sell for over listing price. If you listed it at $1,000,000 you might be on the market for 250+ days and end up taking a lower offer.
We are in the industry and are bemused by all of these opinions. The average consumer who moves every 7 years must be in total shock.
The value of any home is exactly equal to the price someone is willing to pay at the exact time that you agree to sell it.
These are all good points but I am looking to delve deeper into the issues facing Joe and Mary Blow – the average American real estate customer. The people that don't have access to the head of marketing Zillow, the founder of OnBoard, the head of education Executive Realty or the founding partner of the Wav Group to help consult and console.
What I’m trying to determine and bring to the forefront is if by virtue of such discrepancies, by virtue of a realization that so many agents within this industry are new, inexperienced are so poised to price homes to “get the most they can for it” as is so often recited during a listing presentation, is if Joe and Mary Blow are now so totally confused that they simply do not know who to trust and who to believe?
I have to say that I am one of those Joe Blow’s sitting with an interest only investment that will adjust next year in Ca and I’m clueless as to what to do with it. It begs the question for many Americans, who is an expert and who can they trust?
Marc, brilliant post pinpointing the issues with valuation, including realestimate. Also impressed by the level of comments. You sure have a great crowd reading your blog.
Marc,
Next time an agent sends you a market analysis that sites sold comparables, ask the agent to tell which of those comparables that they have personally seen inside and out.
Some would say that a market analysis should be completely numbers-based and that seeing the properties ground level is not relevant to market value, but I disagree. When I present a market analysis based on comparables that I have seen first-hand, I am stubborn and vehement about my pricing recommendation.
This is not an easy thing to do since, by definition, the comparables will no longer be on the market and cannot be toured with a lockbox key. However, there has to be one agent in your market who previews every home that goes on the market so that he can know your neighborhood better than anyone else.
You call that guy or gal and you will know what your home will sell for.
Let me repaint the picture.
Mr and Mrs Home seller buys a home in 1995. $150,000.
Last year, a CMA resulted a value of $595,000. Now, 12 months later they want to sell. They believe their home is worth at least $595,000 if not higher.
They use the online valuations and they get a spread: $395,000 – $695,000.
Several Realtors CMA it between $535,000 and $575,000.
The result: Chaos. Confusion.
Now a series of agents come and some agree to list it for whatever the seller wants just to get the listing and others will try and be more professional and keep it within a range that makes sense. Meanwhile the home sits for months and months are they are in many destinations all the while it's overall value continues to decrease because it was never priced right to begin with.
Are valuations systems helping, hurting, thoroughly confusing or illustrating a deeper dysfunction within real estate?
Is it entirely possible that maybe the only way to properly list homes today is to use online valuations to get an idea but list it with a starting bid price of $100.00 that engages buyers like eBay and see what the market bears?
Silly as it sounds, where I live, nothing is moving, homes appear to be priced way to high and the consumer seemed overly perplexed.
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How much is your home worth? Well, it all depends where you live.
The real estate market is still shaking. New data suggests that home prices have hit a new record low. In every new study that comes out, homeowners from Miami, to Las Vegas, Phoenix and Los Angeles, have seen their home value go lower every time.
Is that disappointing? Of course it is.
Should we sell? Is not a good time.
Should we stick to it? Yes, if you can.
Have we hit bottom? Nobody knows.
Banks are facing their worst foreclosure crisis.
Don’t take me wrong, it’s good if you are in the market to buy a home for yourself or if you are an investor, but if you are not, and you own a home, most likely the value of your property is down at least 15 %.
Why do banks care if you are loosing your home? By having to sell repossessed homes, banks have to literally slash their prices down. It gets very costly for them, after all, they have to pay property taxes, maintenance costs, and whatever utilities that need to be paid, all of this expenses for a house that it’s just sitting there, vacant, and the bank is getting nothing in return.
The latest study by the S&P/Case-Shiller Home Price Index of 20 cities, revealed the news that for 22 consecutive months home prices dropped. Only from April to May, 2009 the decline was of 0.9 %