You have a brain tumor!
(or maybe you don't)
The dangers of online home valuations
Technology is wonderful. I'm usually one of the first to adopt new gadgets, gizmos, and toys. It helps us work better and faster, and entertains us like we never could before.
Like most industries, new technology has transformed the real estate business and how Realtors® work, and how consumers buy and sell homes. Big data is here and the availability of vast amounts of information enables anyone to find out just about anything.
However, access to information doesn't always paint the whole picture. Without being able to understand and interpret the data, many times leads to MIS-information.
In the real estate world, there are now various websites that tempt consumers with valuations of properties, whether they are for sale or not. Their business model is to lure potential home buyers or sellers to their sites, collect some information, and then sell it back to real estate practitioners as leads. And they have been very successful over the past few years.
Unfortunately, the algorithms and calculations that these sites use is often wildly inaccurate and outdated, which leads to confusion and can possibly lead to trouble for the consumer.
The CEO of one of these very popular sites recently told "CBS This Morning" that the national "median error rate" on their estimations was 8%. WHAT?? Think about that: On a $500,000 property, their estimate could be off by $40,000. That's $40,000 in either direction. In other words, an $80,000 swing!!! And that's based on the national average. According to their very own website, some areas have shown to have an error rate of over 40%.
This CEO has said that their estimates are really just a number to get a conversation started with a Realtor®. Imagine if you go to your doctor and they tell you that you have a brain tumor. Then they said, "Well, maybe you have a tumor and maybe you don't. There's a chance that you do. But maybe I'm wrong. I just wanted to talk to you about brain tumors."
Let's face it, most people don't read the fine print. I'm just as guilty as anyone. Ask me when the last time I read all of that "End User License Agreement" mumbo-jumbo before installing new software. Heck, when did you?? Because of this, many people look at these sites as accurate, and this can really hurt a home seller or buyer.
Let's say you were selling your home and one of these sites told you that your home is worth $250,000. You meet with a Realtor® and they tell you that the property would probably sell in the $225,000 range. However, the online site said it was worth $250,000 and that's what you want to list it for. It's overpriced. As a professional Realtor®, one of the things that I can tell you about an overpriced home is that it NEVER sells. So, the property sits and sits and sits, and as it sits, it loses value. Eventually, that homeowner will have to "chase the market down" until the home finally sells, chances are for less than if it had been positioned properly in the market to begin with!
About 8 years ago, I had a client of mine called me, very excited. They had bought a home a few years before, right at the height of the market here, for $450,000. The market was in a stiff decline, but they were overjoyed, because they were just online and "(insert online valuation site here)" had told them that their house was worth $800,000!!! They wanted to sell it right away and buy a new home!! Now, it came to me, their trusted friend and Realtor®, to give them the bad news. I had to go through and do a market analysis for them to show them that, not only had their home not skyrocketed in value, but it had lost a fair amount of value.
Oh yes, that online valuation had certainly "started a conversation," but it certainly wasn't a conversation that I wanted to have!
The lesson here: contact a Realtor®. PERIOD. A Realtor® is a professional who does this every single day. A Realtor® knows the local inventory and isn't just pulling information from public records and running it through a mathematecal calculation. They know how one neighborhood compares to another and what condition homes are in. And most importantly, a Realtor® is there to answer your questions, look out for your best interests, and help you achieve your goals. Let's see any online site do that!