The Story Behind Home Valuation Sites

For better or for worse, home valuation Web sites are shaping consumers' expectations of property values. Understand how the sites work, and you can respond intelligently to clients' questions.

October 1, 2008

What’s the house really worth?

Before the Internet, consumers had few resources to gain insight into what homes in their neighborhood were selling for. They could talk to neighbors, call a real estate agent or appraiser, or manually search through public records.

Today, however, consumers can turn to one of the many Web-based home valuation sites for a price estimate of almost any home in the country.

As useful and services may seem to buyers and sellers, you've probably discovered by now that the price estimates are usually far from accurate.

Unless you’re using the sites as a source of leads, you may even find the services detrimental to your real estate business. After all, you're now dealing with buyers and sellers who have preconceived notions (often far from reality) about what a home is really worth.

That may not change in the near term. But you can make the most of the present situation by explaining to your customers how these sites really work. To do that, you first must learn what the site's primary goal is and what factors it takes into account when assigning a price estimate. By talking to clients knowledgeably, you can earn their respect and help them grasp the reality of the housing market.

What's the Site's Goal?

In the broadest sense, home valuation Web sites can be broken into two main business goals.

1. Lead capture tool. The site visitor submits a form with contact information to get price information in return. Then, the request is passed along to a real estate professional who is somehow affiliated with the site, usually for a fee.  The practitioner responds with a CMA, or something like it, with a pricing estimate for that property. If it’s a serious price inquiry, and not just from some nosy neighbor, this introduction could blossom into professional representation when that consumer is ready to buy or sell. At least that’s the intent.

2. Traffic driver. Home valuation is offered as a free tool for drawing traffic to a site with other services or resources for the consumer. Typically, sites in this category allow for anonymous inquiries: simply enter an address and click. The resulting report is based on some proprietary AVM (automated valuation model) formula for sifting through public records for the address (in states where that is available), past and recent sales in the area, and other data, to arrive at a price estimate.

Don't Expect Accuracy

At best, home valuation Web sites can occasionally be spot-on. However, the market value of any home can also be influenced by factors an AVM will miss. Most sites clearly state their value is an estimate only—never an actual appraisal—and advises visitors to contact a professional appraiser or real estate practitioner for accurate, timely, pricing information.

Once you explore several of these valuation sites, you’ll start to see the variance in price estimates, and you'll know which of the valuation tools is most accurate for your area. Some sites even grade themselves, advising visitors on how confident they are in the accuracy of their numbers.

The Players, and How They Work

Here’s a brief rundown of some of the most popular services, and methods they use to price a home (listed alphabetically).

  • CyberHomes: Using a proprietary AVM formula, Cyberhomes draws on sales, mortgage and new ownership records, demographic information, property appraisals, and other data when calculating its price range. Its free price approximations take into account the latest available public data, as well local factors affecting current pricing trends. Records are continually updated, with more than 575,000 new ownership records added to its database each month.
  • HomeGain: A proprietary computer program calculates its estimates based on a variety of factors, with most emphasis on recent sales in the immediate area, and comparable sales. The company encourages consumers to obtain a CMA for more accurate pricing and offers referrals to real estate professionals who subscribe to its marketing programs.
  • HouseValues:  Home owners complete a form, with an address and description of their home. This information is forwarded to a subscribing area real estate professional who responds with a CMA report. Since these valuations are prepared by professionals with knowledge of the local market, the company says its valuations are consistently accurate and reflect the latest trends.
  • HouseFront: Available online or by text message to compatible mobile handsets, this free service draws on MLS sales data and public records in its valuations. Updated monthly, they are currently available for more than 100 million properties through the United States. Valuations are rated A, B, or C, to indicate the company’s confidence in the accuracy of the price.
  • ValueMyHouse: Subscribing real estate professionals provide a free home value report to home owners who complete a form on the Web site. This CMA is based on the real estate professionals' knowledge and familiarity of the market. These subscribers are expected to respond to requests in their market area within 24 hours, and offer the home owner the opportunity for an updated valuation, six to 12 months after the initial report.
  • Zillow: Zillow’s “Zestimates” are calculated using a proprietary algorithm based on data from public records, tax assessment, past sales history, and recent sales in the area. Enough information is currently available to estimate prices on 70 million homes throughout the country. The company claims a median margin of error of 10.6 percent, with 27 percent within 5 percent of the actual sales price. A "My Estimator" tool lets home owners update information on their property and select comps in the area to more accurately reflect a home’s value. It's Not All Bad

Though it may seem frustrating at times working with consumers who already think they know what the home is worth, home valuation sites does have some benefits too. They provide other real estate market information that helps customers become more educated about buying and selling.

They also give you a new avenue for promoting yourself and your listings—sometimes for free. For example, Zillow lets you post your listings at no charge and build your reputation as an expert by answering questions  that were posted to online by customers in your market area.

To become a true resource for your clients, take time to explore all of the home valuation sites that are popular in your area so you can explain how they work and what benefits—if any—they really offer.