Establishing The Value of a Home Has Traditionally Been an Appraisers Job,
Ricardo Hernandez did a lot of hard work to turn his 3,500-sq.-ft. stucco home in the Stockton suburbs into an ultimate pad for grown-up parties, It included a custom wine cellar, game room, plus a infinity-edge pool that overlooked Lake Lincoln. When interest rates recently dropped, Mr. Hernandez, took a look into refinancing his $350,000 loan. And that is when he received the news that his home had gone down over $150,000 in value as he was renovating it.
Close, is what one on-line real-estate website figured. Another said the value of the house was only $300,000. While these online estimates of value caused him to be all the more baffled. Especially after a flesh and blood appraiser, who assessed the house for a refinancing loan, said it was worth $500,000. "I had no clue as to how those figures could all be so diverse," Mr. Hernandez says.
Right or wrong, they are the figures millions of buyers and sellers are in a commotion over. After decades of real-estate professionals holding all the information cards in the game of home-selling, Web-based companies such as Homes.com, Realtor.com and Zillow are rearranging the deck, providing home shoppers and home owners with estimates of what the value is for just about any home. People have been flocking to the on-line data in astounding numbers: Combined, four of the largest sites that provide home value estimates receive 100 million visits each month, as web surfers use them to try and figure out what to bid or to ask for a particular home, or whether they should refinance.
Trulia , Zillow, and other on-line sites post opinions of home values. However these trendy sites can be, and by their own confession, be uncontrollably inaccurate. .However for numbers which can carry such heavy weight, critics believe, the values can be way rougher than the majority of people even realize. Valuations that can be as much as 20% or as much as 50% more or less than the
eventual property sale price aren't unusual, as the sites divulge. Also, the estimates change frequently, often by thousands of dollars while the sites plug in new data to use with their algorithms.
What these Sites Do Right and What They Get Wrong
Each of these competitors make a point to express that their numbers are purely guesstimates, and not the not gospel. "An estimate by Trulia is just that, it's just an estimate," a disclaimer on the site's home-value tool says. Zillow goes one step more, publishing precise figures about how inaccurate its estimates can vary. Every major on-line-site urges home-value hunters to consult with an appraiser or real-estate agent to fine-tune their results.
Although despite all these disclaimers, real estate agents and homeowners say, many surfers on the web put just enough faith in these estimates to influence the way they sell and shop.
After Bob and Sara Kellogg put their ranch-style home in Fresno, Ca., up for sale, they were dismayed while Zillow put a $281,000 estimate of value on the property in April; by July their value had climbed to $980 thousand. (Zillow said the lower estimate was a reflection of errors in their statistical models.) The couple received potential buyers from the Zillow site, although they staved off numerous lowball offers prior to them selling in the fall. Mrs. Kellogg says the roller coaster estimates "adversely affected their ability to sell the property."
Establishing the value of a home has traditionally been an appraisers job, one who collects data on homes recently sold and compares these sales to the "subject property" data to determine an estimated value.
During the later part of the 1980s, economists began creating automated evaluation models, or AVMs, which were computer models which could analyze information about square footage, comparable sales, bedrooms and such, in just a few seconds. For many years, these computerized tools were mostly used by analysts in-house at lending institutions.
In 2006 Zillow took these computer models out to the mass population, with what it called Zestimates, which now provides values for over 100 million homes which are based upon the company's
proprietary algorithms. "Humans do not come up these decisions," says Zillow's chief economist, Stan Humphries..
these kind of numbers have become the consumers arsenal of weapons for people such as Sammy Jones, a Denver marketing executive, who recently relied upon online estimates to assist him in both buying and selling homes. "I cannot imagine that 25 years ago, people just went out and spent all day Saturday inspecting homes," he said. "There's no need to do that any longer" However real-estate consultants and appraisers say these online models can be off target with shocking regularity.
Most of this data for the computer models originate from just two sources: tax assessor records and recent sales. Collecting this data is a difficult, however, as each county tracks properties differently. some determine home sizes by the bedroom count, others use total square footage. These automated models were not designed to take a property's unique construction details into account which can frequently make or break the deal, or for elusive aspects such as the gentrification of a neighborhood' . "Computer models cannot be used in certain locations and expect the estimate to be right on target.
For every one of these reasons, banks use models which often include a "confidence score" added to their estimates. Meanwhile consumer-oriented sites, must rely upon disclaimers, several of which are real eye-openers. People surfing Zillow read a page "About Zestimates" discover that taken as a whole, the site's error ratio, the amount that its estimates may vary from the true value of a home can run around 8.5%, plus around one-fourth of these estimates are at a
minimum of 20% different than the subsequent sales price. In a few areas, these numbers are much more dramatic: For example, Hamilton County, Ohio, where Cincinnati is located, the figures are 82% off..
These sites contend that, over time, corrections and edits are helping them to perfect their figures while many of these edits come from their users.
At Homes.com, anyone knowing the surname of a homeowner plus the year in which the home sold last, can edit property details in such a way which can eventually affect the estimated value.
Zillow has now accepted revisions from users on over 25 million homes, which is perhaps the most compelling testament as to the seriousness of how consumers believe in its estimates. Today, Zillow says its numbers are precise enough to provide consumers with a fair sense of the value of any home. Meanwhile, Mr. Humphries, its economist says, "We're constantly tweaking our algorithms and building new ones."
Dec 28, 2011
Real Estate Finance