Are Online Home Valuations Even Accurate

Are Online Home Valuations Even Accurate

As technology becomes more advanced, the way real estate is sold or marketed to the public continues to change. I remember back in the day when Google Earth first became a thing. Agents were freaking out because they could look up properties and see them from the sky. It was the coolest thing and made us all feel like we were undercover spies, like James Bond.

Today, we have other innovations that have propelled us into new territories. With the advent of new technology comes new ways that agents must adapt or improve.  

One of these key pieces of technology is the online homes estimate or valuation.

Made popular by sites such as OnTheHouse and now offered up by realestate.com.au, online estimates seek to provide the real estate client on what their home is worth.  The convenience is undeniable, but the same can’t be said about the accuracy.

These sites became popular for homeowners who are just beginning their home sale process. Someone gets an idea to sell their house, and they just want to “check the market.”  After the 2008 Global Financial Crisis and the availability of information online it is common for people to want to know how the market is doing before seeing if it would be wise to buy or sell.

There is no question that these are very popular sites and they are very good for searching homes that are available for sale in your local neighbourhood. There is however a problem with these sites.

All these websites have an algorithm and they determine the value of your home based on similar sized homes and property size in the area. Sounds simple enough, right? What could be wrong with this?

Well, a lot actually.

Why They Aren’t Always Correct

Reason 1: Automation

Robot Fail

The data is uniform and isn’t based on a carefully put together appraisal based on anything tangible, such as the condition of the home or the décor.

It’s not as if there are thousands of little drones all equipped with Artificial Market Intelligence sweeping through each property and generating some sort of educated estimate.  Automated systems are responsible for generating a predictive estimate all on their own without any oversight from humans with market knowledge and knowledge of the “tangibles.”

Keep in mind, this computer-generated software isn’t looking for future movements.  So, anything that is going on off market in your area isn’t going to be covered.

The computer’s prediction isn’t focused on any hard and fast data, other than patterns.

Again, this article isn’t intended to denigrate these easy-to-use services, I just wanted to lay out the facts for future home buyers and sellers who may be reading this so that they are aware of the how these systems work.

A real estate agent is always going to be the best bet for clients who want to know the ins and outs of the market in question.  

Automated data and generalized findings aren’t the surest path to getting a proper estimate.  

Some would argue that consulting these services does you a disservice.  

Proponents of this thinking claim that by skipping agents and going straight to online estimate tools, clients may have inflated numbers in their heads.  Since this is their first impression of the market, it can leave clients feeling misguided. This can also set you up for huge disappointments down the road when your agent tells you that you aren’t going to be getting an unrealistic fairy tale price for your home.

Reason 2: They Look for Patterns

Pattern

These services rely heavily on computer algorithms that have been pre-programmed to scour data and look for patterns.

Operating a system of predictions based on patterns seems like it would be a good idea, and in theory it seems very sophisticated, at least on the surface. However, one of the major things to consider is that real estate isn’t just a system of patterns and fluctuations.  It isn’t as cut and dry as certain aspects of the financial world.  

There are obviously patterns and some predictable fluctuations, but these happen based on aspects of the market that typically aren’t perceptible to a computer program.

When you consider that the value a house has changed over time, computers that are looking for patterns may be able to make sense of data, but they are relatively poor judges of which data is most important in the sale of real estate.

To be able to truly read a pattern, you need to have years of experience with markets and have some knowledge of predictable trends that occur throughout time.  Without this background information, it can be hard to understand what is going to happen - even for a computer.

Here’s why.

Let’s say your home is a gorgeous brand-new home with all the finest finishes and mod cons. Imagine your home is listed and gets sold for $1,500,000. Now your neighbour has a home that is the same size, however their house is old and has not been looked after in the slightest. The computer does not know your neighbour’s house is in such a state. So, it’s going to possibly calculate the value based on what the property sold for next door and then guess what… now that homeowner thinks he has a $1,500,000-dollar palace when in reality it may be $1,000,000 at best. I have seen some massive discrepancies with these price estimates, and some people believe them!

Here’s where it gets even more complicated.

All these websites take properties in a certain radius and average out the price per metre for those properties. The property could be in two different suburbs. Coomera Waters and Hope Island are two good areas to look at. Homes in both suburbs are lovely, but it can be hard to compare the two when they’re separated by a river and take at least 20-25mins to drive to and from. This is what confuses buyers and sellers on the valuation of their homes, and one of the reasons you must be extra careful using online sites such as these.

These websites are not run off comparable sales that have been examined by the human eye. They are simply price per square metre within a location and it’s put out by the computer.

Reason 3: They Can’t Account for Unique Property Values

Unique Property

A computer-generated system also won’t know that your house has emotional value.  And sometimes, you as the home buyer or seller won’t know this either.

It always surprises me when a client believes that just because their house has the same number of beds and baths as the house next door, that they will be worth the exact same price.  

Even if you live in the same neighbourhood, houses can have widely different qualities that make the price of the home differ substantially.

When using the computer’s algorithm, it can’t input a price adjustment for special amenities, or spectacular features.  

Other factors such as your gorgeous view of Surfers Paradise, for example, will not play a factor in determining the estimated price.

Getting a great estimate is as simple as picking up the phone and calling a real estate agent.

I like these websites, for searching for homes that are available. However, I recommend being careful because they are usually incorrect when determining the value of the home.

The Fate of the Agent and Online Estimators

I honestly don’t believe that these types of online services were meant to detract from an agent’s job. In fact, I think it actually does the opposite.  

You need a real estate agent, regardless of whether you’re a buyer or a seller. It’s an infrequent, emotional, complex transaction. Having a great person at your side can be really valuable.

From a practical standpoint, these tools help visitors to come to a website, and it is a very attractive idea.

However, once they do a little playing around and realize that the numbers are way off they will want to consult a professional.