Over the last several years the internet has had a tremendous impact on the real estate industry and how property has been marketed, purchased and sold. Consumers have access to reams of data that can educate them to make better decisions or confuse them with the amount of information available. For purposes of this article, we will focus on home valuation sites and the data that is presented. The two big players in this market are Zillow and Cyberhomes.

Zillow hit the market about two years ago. They were revolutionary in the sense that they were the first to provide online property valuations. Simply go to their site, enter your address and you were given a Zestimate (estimate) of the value of the property you were searching. The euphoria surrounding Zillow’s launch initially caused real estate agents a lot of angst. Concerns were voiced regarding the accuracy and integrity of the data along with the viability that real estate would be a career going into the 21st century. With the continuing dissemination of information available on the web, would a real estate agent be necessary? Does the phrase “travel agent” come to mind? Now that time has passed, it does appear the two will likely coexist at least for a few more years.

Visit both of the sites. Put in your address and see how far apart the values are. Pricing a home is not a science. Its objectivity and subjectivity, it’s a little bit of an art. It’s not black nor is it white. It’s rational and emotional. So how can something that has no pedigree be done without ever visiting a home and have any hope of being correct?

Is Accuracy the Goal?

The emphasis may not be the accuracy of the data insomuch as it is getting people to their site and having people talk about it. It might just be to create a brand which enables them to explore other venues. I took a quick look at the homes sold in Pasadena for the month of February. I compared the listing price to the sold price and finally to the Zestimate.

As you can see from the comparisons some are higher and some are lower. Unfortunately homeowners who look at the Zestimate of their home are in shock when they find out that it is worth about 10% less than the computer generated valuation.

Where Are the Problem Areas?

Take a single family home in the center of the street in a large homogenous neighborhood and Zillow will provide a close estimate of value. However they do have some shortfalls:

1. Lot Size – they do not seem to offer a higher estimate for a home that sits on a larger lot. OF homes offer the identical square footage but one has a lot of 12,000 sq ft and the other has 7500, it is not shown as increased value.
2. Location – a big issue here. Homes close to the noisy freeway or corner lots on busy streets show no deduction in value. Homes that exhibit these characteristics can sell for 3% to 8% less than other comparable homes in the “quieter” locales.
3. Condition – the amenities a home offers along wiht the curb appeal are intangibles that could never be captured without a visit to the home.
4. Rapidly Declining Neighborhoods – in some instances prices are falling faster than existing valuations creating higher expectations.
5. Fraud – I have seen what appears to be mortgage fraud leading to foreclosure. Once sold, it is recorded, whether it is legit or not. It is garbage in, garbage out mentality which online valuations cannot distinguish.

Bottom Line

The buying and selling of property to a large extent is based upon emotion. Many people will attempt to talk themselves into believing it is a business decision, but it is the emotional aspect of the property that either pulls you in or lets you go. And when you deal with emotion you can analyze facts all day long, but to some it just won’t matter.

Actually it seems that the data as reported in the MLS and produced by licensed real estate agents was pretty close to the information reported by Zillow. While this brief analysis is not meant to be a scientific sample it does support one theory. Determining the proper value of a home in a slowing market can be a difficult task as evidenced by the number of price declines we see today. If you are thinking of selling your home, it pays to utilize the online resources and also talk to at least three agents to get a realistic view of your property’s value and the time involved to sell it.