Is Your Estimate Accurate?
Real estate valuation is a difficult business because there are so many subjective factors that you can’t directly measure in selling prices. It’s all relative.
When I entered my home into the calculators above, for example, there was a wide range of prices displayed. Zillow gave my home the highest estimated value, although it was only $3,000 more than what we paid for our home. Assuming this value was the high end of their range–buyers usually negotiate to buy at a discount to the sale price–we’d probably sell for a loss. Of the other estimators, only Redfin showed a range above our buying price. The others showed that we’d be facing haircuts of $20,000 or more.
There was one thing that none of the estimators could show in any detail: real estate market sentiment since 2008. You have to be realistic about the massive hit homeowners took during the housing crisis. There are places where prices have not recovered–and may never recover. The Upper Midwest, where I live, is still hurting. Las Vegas, Arizona, Florida, and central California were hit worse. Texas, Silicon Valley, and much of the Northeast held up fairly well.
In other words, what you think your home is worth–or what one of the online estimators tells you it’s worth–isn’t always shared by buyers in your area. Prices are still slow to recover in areas that were overbuilt or overpriced.
“Real estate is not a commodity,” says Scott Robinson, president of the Appraisal Institute, a professional association representing appraisers. “It’s unfair to accept that automated services are realistic, although the algorithms are getting better.”
Home Value Estimate May Not Be Close to Selling Price
Sometimes an online home estimate may be close to a home’s eventual selling price, but don’t bet on it. Those estimators may not take into account improvements you’ve made to your home–and sometimes, our own egos cloud our judgment when assigning value to those improvements.
One big ego roadblock that can derail your pricing estimate is thinking that you’ll get every penny back for improvements you’ve made and that you’ll at least get what you paid for the home.
You can’t expect to reap all the dollars invested in a new kitchen, bath remodeling, and windows. Buyers may not value those upgrades.
The value of those upgrades can vary from buyer to buyer and region to region. Swimming pools are obviously valued more highly in Southern California, Las Vegas, and Florida than they are in the Upper Midwest.
Check on the payback estimates for various improvements to see if you can justify adding them into your listing price. One good source for this type of information is from the National Association of Realtors. Some improvements add more value than others, according to the agency. Roofing, insulation, and flooring upgrades generally have more than 90% returns on investments. In contrast, remodeling a basement into a living area has only 70% return.
Since real estate pricing is subject to local trends and buyer demand, it’s hard to tell if your estimate–even if calculated from various online sources and fairly adjusted for improvements–is going to be accurate. If you’re serious about selling your home, it always helps to consult a number of local brokers who know the market–and your neighborhood in particular.
When working with a broker, insist on a walk-through and ask pointed questions like: Are ranches selling faster than two-story colonials? Do kitchen upgrades matter? Are young buyers looking at neighborhoods with good schools and parks?
Another helpful piece of data is the number of days homes are on the market in your area. Focus on number of days on the market by ZIP code. For comparison purposes, you can get a national “unsold inventory” number from Realtor.com and state averages from your state’s board of realtors.
If homes in your area are sitting unsold for months, they may be overpriced. If you’re looking to sell quickly, be sure your asking price is reasonable–which may be much lower than your original estimate and maybe even outside of your comfort zone.
At the end of the day, an online value estimator is merely a starting point for valuing your home; it’s not the same thing as a professional appraisal by a certified appraiser, nor is it the same number used by your local assessor for tax purposes. But it’s a good starting point. Just remember to gather and weigh a number of professional opinions before arriving at a selling price.