“How much is my home worth?” Well, from time to time just about every homeowner asks themselves this same question. Consequently, tools like Zillow’s Zestimate, Redfin’s, “How Much Is My Home Worth?” feature, and Homes.com’s, “Homes Value” estimate are very popular.
However, there is a difference between a casual best-guess at value, and actually trying to determine how much your home is worth. After all, if you are thinking about selling your home, you do not want to leave any money on the table. In this article, I will compare and contrast these online home valuing tools, as well as other more traditional options available to homeowners.
What Is Zillow’s Zestimate?
Zestimate is a clever way of saying estimate. Therefore, Zillow’s Zestimate is essentially just that, an estimate of your home’s value. You enter your home’s address on their site, and they give you an estimate of its value.
How Accurate Is Zillow’s Zestimate?
This is where things get interesting. Zillow claims that the average home that goes on the market sells within 1.9% of their Zestimate. For off-market homes, the spread goes up to 7.5%. Their 95% confidence interval is within 10% of the final sale price. I’ll explain how you can interpret these statistics below. Note, Zillow publishes more accuracy statistics for many major metro areas on their website.
So, does this mean that a Zestimate is accurate?
Let’s look at an example. Say Zillow’s Zestimate calculates that your home is worth $1,000,000. Zillow would say that there is a 50% chance your home, if put on the market, sells between $981,000 and $1,019,000. Of course, that means there is a 50% chance the final sale price falls outside of that range. In fact, there is a 5% chance that it sells for less than $900,000 or more than $1,100,000.
On first glance, those numbers look pretty good. I will even admit, many of us agents generally take a look at Zillow’s Zestimate before pricing a home. However, if you house has undergone significant renovations, and differs from how it is described on the last publicly available deed or assessor’s department records, then Zillow could be far off. I’ll get into why that is later.
What Is Redfin’s Estimate?
Redfin’s estimate is similar to Zillow’s Zestimate. You type your home’s address onto their site, and they estimate the value of it. Like Zillow, Redfin does not physically send someone to your home, instead they rely on publicly available information and market trends to determine the value of your home.
How Accurate Is Redfin’s Estimate?
Redfin claims their estimate is more accurate than Zillow’s and Homes.com’s determination of value.
Of course, and perhaps most interestingly, Redfin claimed that they only evaluated 5,000 homes in their study that assessed the validity of their estimate feature. We also have to remember that Redfin, and soon Zillow, are now trying to list homes themselves (See Why I Will Never Work for Zillow – A Real Estate Agent’s Perspective). Is there a conflict to inflate prices there? That’s up to you to decide. In fairness, agents also frequently estimate the value of a home for potential sellers.
What I find really interesting is that Redfin could have easily pulled the sale data from tens of thousands of homes to determine the accuracy of their software. Regardless, if they published a study to review their estimate feature on homes that they wanted to list, I question its validity.
How Accurate is Homes.com’s Estimate?
Homes.com has their own estimate feature, “Homes Value”. Homes.com does not publish any easily-identifiable information in regards to the accuracy of its estimate tool. I have found their past estimates of homes’ values to be lower than that of Zillow’s and Redfin’s.
Testing the Services of Zillow, Redfin, and Homes.com
Just for fun, I tested all three online tools using the home I live in, a three-bedroom, two-and-one-half bath, 2,500 square foot, colonial house just outside of Boston, Massachusetts. The market value came back as:
- Homes.com: $998,545
- Redfin.com: $1,034,027
- Zillow.com: $1,043,176
For what it’s worth, I would say that all three approximations are a bit low. My estimate would be about $1,050,000. This brings me to my next point, there are far superior ways to determine the value of real estate.
Better Ways to Determine Value of Real Estate
Here is the thing, determining the value of real estate is not easy. It certainly is not a science. You can use different formulas for ascertaining value, such as cap rates, comparative market analysis’s, etc.
The fact of the matter is this: Your home is only worth what somebody is willing to pay. Online sites rely on past data. Housing demand is continuously changing, so the value of one piece of property today may be far different than it was a few weeks, or months back.
Your best bet is to hire a competent real estate agent. An experienced agent should be willing to estimate the value of your home for free. In fact, you can get a few estimates.
Once you are ready to put your home on the market, both your agent and you can make any last-minute tweaks in price depending on current buying demand. Perhaps most importantly, a real estate agent will (now possibly virtually) come through your home, and they will have seen many other houses in your neighborhood. This will allow them to better compare your home to others, and more accurately determine its value. If you are still in doubt, you always have the right to get an appraisal of your home.
While I hope one day that sophisticated algorithms will be able to perfectly define the value of everyone’s house, we are not at that point yet. Above all, never rely on an estimate from a firm that has never been in your home.