The Growing Acceptance of Real Estate Value Inaccuracy
What is your Austin home worth, right now? When considering a sale, it’s generally worth “market value”, defined loosely as the highest price a buyer would pay, and that a seller will accept in an open, competitive market. This assumes neither buyer nor seller are under any undue stress or duress external to the transaction itself.
Many homeowners want to know their home value even when not considering a sale. Such as when protesting assessed property value at Travis County. Or maybe you are just curious, or you want to update your Net Worth spreadsheet with a current value.
If you don’t want the “market” to determine your home value, because you don’t want to sell, there now exists a plethora of “Automated Valuation Model” (AVM) tools that will tell you the supposed value of your home online based on mathematical algorithms and data. The most well know is perhaps the Zestimate on Zillow.
Let’s take a look at these AVM tools and see how accurate they are. I’ll use a home I own in SW Austin as the subject property, as I am preparing to sell it and in the process of determining the best list price.
About the Home
The home I am preparing to sell is in Villages at Western Oaks. It’s the largest 1-story floorplan built by Newmark at just under 2,500 sqft, and it sits on one of the largest lots in the neighborhood at 0.35 acres, and also has towering trees, which adds value. The floorplan, size, lot size and location within the neighborhood (walking distance to coffee, restaurants, theater, etc) are all “value adds”.
But it was built in 1999, and still has the original roof, HVAC, water heater and appliances. These attributes would subtract from the value if I was advising a buyer, because they could represent expected near term “big ticket” expenses. The home also lacks a sprinkler system, which makes the water bills super low but does create some watering effort with hoses, timers and manual sprinklers. But the master bath is upgraded nicely and the home also has upgraded wood flooring throughout.
These are all factors that a Realtor would subjectively use to add or subtract value when doing a Comparative Market Analysis (CMA), and that a buyer would observe when establishing a level of interest in the home.
The exact same floorplan just sold for $475K, but that home has a completely updated and remodelled kitchen and was “bid up” due to multiple offers. It oddly did not have an updated master bathroom though. It would still be the “best comp” though.
So, what should my home sell for? What’s it “worth”?
I actually don’t know for sure just yet, as I haven’t decided how far I’ll go with prep and staging, but I think it should sell for around $450K as-is, given all of the factors above and my knowledge of the area, in which I have personally bought and sold many homes over the years as well as helped clients do the same. I know the neighborhood and its values.
Let’s see what the automated valuation models say though. Here we go …
$473,852 ePropertyWatch (CoreLogic Tool)
$461,000 USAA Home Value Monitoring
$406,638 TCAD (Travis County Appraisal District – not a true AVM but relevant nonetheless)
So what is this home worth? Notice the $50K gap between the top 4 and the bottom 4? And the nearly $100K gap between the highest and lowest? These numbers are all over the map. Each source boasts of it’s accuracy as being the “best”. Oddly, if we add them up and divide by 8, it comes out to about $445K, which is pretty close.
I still say the home is worth about $450K and I think I’m right. I think I’m smarter than the mathematical algorithms and I believe I know more.
Oddly, the “wrongest” is Redfin, which boldly proclaims to be the most accurate, at $502,091.
There is zero chance, nada, that this home would sell for over $500K. No chance whatsoever. Ain’t gonna happen. No way. So when you read propaganda from any valuation model bragging about its accuracy, just know that that’s a lie. None can truly predict better than a knowledgeable human. That said, even a broken clock is “right” twice a day, so the AVMs do often come close, especially in homogenous neighborhoods with similar grade homes and narrow value ranges.
Homes.com is the next wrongest, at $499,533, and Trulia at $405,181, and Zillow at $407,038. The four most public and popular consumer real estate portals are the most inaccurate. How ’bout that? Do you trust these sites?
The closest, interestingly is USAA at $461K. USAA is my bank and insurance company. Nothing flashy or braggy about it. Perhaps it benefits from knowing the age of the roof and other features because those data points are entered in by me as part of the insurance quote. I’m sure it also sources data from other public records.
The next closest is CoreLogic’s ePropertyWatch, which I doubt anyone has ever even heard of. It gathers data from insurance companies, banks, as well as public records and MLS systems and many other sources (CoreLogic, which you’ve also probably never heard of, is the provider of Matrix, the most widely use MLS System by Realtor associations across the country).
The ePropertyWatch AVM would be closet if the home was updated and the mechanical components not nearing end of life. Perhaps the next generation of these tools will allow users to key in such data to improve accuracy.
The AVM Winner Is … USAA and CoreLogic
It’s interesting that the two “winners” in this small unscientific test are not consumer facing “portals”. Both are analytical data giants largely unknown to the real estate browsing public, and neither USAA nor Corelogic would land “top of mind” if typical consumers were polled on “a good place to get an automatic value estimate for your home”. Would you have thought of either?
The Zestimate, by Zillow, widely derided and deservingly so, is completely wrong most of the time. Yet Zillow tells us that consumers tell it that the Zestimate is, by far, the “favorite” and most loved feature of Zillow. I find that interesting. People “like” the Zestimate knowing full well it is probably lying to them.
People don’t care that the Zestimate is wrong. They know it is wrong, but remain interested in knowing what the “wrong” number is. Why is that?
Has there been a shift away from expecting accuracy of information and precision in our social mindset and movement toward acceptance of that which is known to be inaccurate?
I think so. Not just in real estate valuations, but in many areas of life, including news and entertainment, which have blurred. And real estate has blurred as well, with public portals such as Zillow and Trulia offering what I call “real estate entertainment”.
These consumer real estate portals exist to sell ads to agents, not to sell homes. You, as a consumer of its content, are tracked and manipulated, your browsing behavior closely studied to keep you engaged as long as possible and, ultimately, to get you to “click”, so you can turn into a “Lead” to be sold to an “Advertiser” (Realtor who pays to receive your lead). In fact, a Sales “Listing” is internally referred to at Zillow as an “Ad Unit”.
Ha! So a seller who says “I want my home on Zillow is unknowingly saying “I want my ‘ad unit’ on Zillow”. Zillow doesn’t cause a home to sell a dat faster or for a dollar more. Period. That’s not why it exists. But the Zestimate does serve to bring in a lot of traffic.
Consumer real estate search sites are certainly not places to go to find true, correct and accurate information about housing values, yet they dominate search traffic and site visits in the real estate space because people “like” the websites and apps and the way information is presented.
This acceptance of manipulation and untruth has bothered me for a number of years. Realtors must abide by a Code of Ethics, consumer real estate portals do not. There are no rules for consumer facing public real estate portals such as Zillow and Trulia. They can do with you as they please, manipulate the data however they want, and there is no accountability structure in place at all.
But, Now, I Finally Cry “Uncle”.
I give up. I’m joining in. If you can’t beat them, …
Our MLS provider CoreLogic has provided an AVM tools for our clients to track and receive updates on home value, and I’ve surrendered to my accuracy sensibilities and set it up for my clients. I’m not sure if I have “snapped to” the reality of this new digital world where truth matters not, or if, quoting the Borg, I’ve been “Assimilated”.
So now, I’m no better than Zillow. I’ll provide you with a grossly inaccurate Guestimate of your home value, if you want it. Or it could be right. You can receive from me an estimated home value that may or may not be accurate. The data and overwhelming evidence tells me that you’re cool with knowing it may be wrong and you probably don’t care. You like seeing it anyway. OK then.
But the good thing about ePropertyWatch is that it has an override feature, whereby I can go into the back end and override the estimate with a manual number. So if you receive a valuation that you believe is way off, let me know and I can correct it. Pretty cool, huh?
Try it out below or follow this link to enter your property. Then comment on what you think and how accurate (or not) your particular valuation is.