Pros and Cons For Automated Home Valuation Tools

When it comes to selling your home, a knowledgeable, experienced real estate agent remains your best source for an estimate of its current value.

by Barry James, May 26, 2007

Over 80% of home owners begin their effort to sell their home on the internet. Many choose to get an estimated values of their home’s worth using a variety of home value tools that are available on the internet. Some of these tools have been available since the year 2000, and over the last two years they have regained their popularity among both homesellers and buyers alike.

Using the automated home valuation tools is fun, but their results must be interpreted in the light of the methods used to generate their results. Anyone who thinks they can rely on the estimated home price provided by an automated valuation tool first needs to understand a few things about their limitations. Here are a few pros and cons you need to consider when using any of these tools.

Pros of Automate Home Valuations

• They’re free. The major automated home valuation tools are offered at no charge to the consumer.
• They’re easy to use. Just enter in the location of the home and hit enter. Everything else is done behind the scenes by a computer.
• They’re fast. Within seconds you’ll have an estimated home value, expressed either as an exact price or as a price range.
• The best ones also provide information about the home’s neighborhood, such as homeowner demographics, average income, school performance data, and even satellite photos of the home and its surroundings.
• They’re loads of fun because they allow you to be anonymously nosy. You can find the estimated value of your neighbor’s home from the privacy of your home, without anyone finding out. Of course, your neighbor can do the same for your home.

Cons of Automate Home Valuations

• All automated home valuation tools are based on the past. Each predicts your home’s value using historical sales data for nearby and comparable homes that sold in your neighborhood over the last year to eighteen months. These estimated prices could be higher or lower than your home really might be worth.
• They’re based on publicly-available data. Sometimes this data is current, and sometimes its months old. It depends on the ability of thousands of local municipalities to provide timely data and this varies widely by jurisdiction throughout the United States. The data is also frequently inaccurate e.g. a three bedroom house may be listed as having two bedrooms.
• The data on which they’re based doesn’t differentiate between refinanced mortgages and real sales data—both look like a home sale to the automated tools and their predictions of a home’s worth is sometimes skewed as a result.
• In today’s market they tend to overestimate the value of the home because; 1. they’re based on past sale prices, not on the current real estate market where falling prices are the norm; 2. they are the result of a computer programmer’s ability to generate accurate data using computer-based formulas and; 3 they can’t account for the current condition of your home.
• The most important factor in determining your home’s real value at any given moment is the condition of the local real estate and lending markets. Automated home valuation tools cannot determine the number of homes that are currently on the market and the number of buyers available to buy them. If your neighborhood has few homes and a lot of potential buyers, sellers may get more than the valuation tool’s estimate. If there is a glut of available homes and few buyers, buyers may have the leverage to get a a lower price than that estimated by the valuation tools. They also cannot determine the impact of the local lending environment, where banks may be reluctant to provide mortgages to any but the most credit-worthy homebuyers.

To get an accurate estimate of the value of your home you need to consider recent nearby and comparable home sales, the number of available homes and potential buyers, your home’s condition, the availability of mortgage money, and a variety of other factors that a computer formula may not be able to accommodate. Throughout the United States falling home prices and the declining number of home sales gives buyers the upperhand in price negotiations. Because of this, those sellers who think a home valuation tool will provide them with a reliable sales price may be sadly surprised when their home doesn’t sell or sells for much less than they expected.

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