Have you got a pretty close understanding of what your home is worth? Is it possible you estimate within, say, 5% of what it’s quite likely going to sell for? If that’s the case, would that make you more accurate regarding your home value than an estimate from a computer program packed with recent sales data and algorithms?
Who’s best at home valuations – property owners or websites?
Maybe. Maybe not. Economists at the Federal Reserve recently completed a study that rated homeowners against computer programs – owners’ estimates of their homes’ worth versus those from automated valuation models – and compared both to the actual selling prices of the same homes.
You know what ?? As it turns out they were “fairly similar.” Despite their track record of excessive enthusiasm concerning their homes’ values, owners weren’t trounced by the computers. But neither the humans nor the computer programs were standouts on accuracy.
Approximately 50 % of the AVM (automated valuation model) estimates and 40% of homeowners’ estimates came within 10% of the exact selling price.
The study examined 1000s of owners’ estimates provided during a Census Bureau consumer survey in 2014 with AVM estimates on their homes from the same time frame furnished by a commercial vendor. Then it compared these numbers with subsequent selling prices.
The Fed researchers noted that although computer-generated estimates derive from information owners usually do not collect – including data on sales transactions – these AVMs “can be incorrect when the characteristics of the home aren’t well measured” or sales prices of a sufficient amount of comparable properties are not available.
Owners, however, understand improvements they’ve made to the house, and in addition they know what the interior looks like – key details that AVMs are missing. What owners have a tendency to lack is objectivity. They’re emotionally involved and could have inflated notions of what turns on today’s buyers.
Ultimately, the arbiters in the valuation game are the professional appraisers who lenders hire to provide them independent estimates. After an inspection, they’ve got the majority of the market data that feeds an AVM along with an intimate understanding of the property. Ask appraisers which estimates they’d bank on and you usually get the same, resounding answer: Neither!
Ryan Lundquist, an appraiser in Sacramento, Calif., says owners and sellers are often especially bad with estimates since they are not tuned into market trends. He explained he recently appraised a property that the owner thought ought to be worth $500,000 higher than Lundquist’s estimate – 30% over current market value.
Lundquist says sellers often are not able to understand that buyers today come to the table having a massive advantage – they have a tendency to have much more facts about comparable sales along with data, as a result of sites like Zillow, Redfin, Realtor.com and others. They pretty much are aware of the tight price range within which a house should sell and are quick to identify overpricing.
Seller disconnects on value also can create big challenges for real estate agents. Anthony Askowitz, broker-owner of RE/MAX Advance Realty in Miami, stated “the reality is that some sellers need to be fired” because they won’t listen to reason about more realistic pricing, and waste agents’ time and marketing dollars.
The takeaway: Valuing a property is hardly an exact science. Specifically in a period when the real estate cycle is transitioning toward buyers’ advantage in several areas, you ought to take advantage of the data available on the internet, then obtain the opinions of top realty agents in your local community. That should help you get pretty close.
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