How Accurate Are Zillow and Online Home Value Estimates?

You type in your address.

A number pops up.

And suddenly you know what your house is worth.

Right?

Not necessarily.

Online real estate websites have made it incredibly easy for homeowners to get an estimated value for their property. They're convenient, they're interesting, and—let's admit it—we've probably all looked up our own house at some point.

But there's an important distinction:

An online home-value estimate is an estimate. It isn't the same thing as determining what a buyer is likely to pay for your particular home in today's local market.

And if you're actually preparing to sell, that difference can matter.

How Do Online Home Value Estimates Work?

Many real estate websites use what's called an Automated Valuation Model, or AVM.

An AVM uses available property and market data to calculate an estimated value.

Depending on the system, that data may include things such as:

• Recent sales
• Property characteristics
• Public records
• Tax information
• Location
• Historical pricing
• Market trends

Algorithms can process enormous amounts of information very quickly.

That's what makes AVMs useful.

But an algorithm only knows what the available data tells it.

And a house is more than a collection of data points.

Zillow Doesn’t Know Exactly What Your House Looks Like Today

Here's where automated valuations can run into trouble.

Suppose two houses are next door to each other.

They're the same size.

Same number of bedrooms.

Same number of bathrooms.

Built around the same time.

On paper, they look nearly identical.

But one homeowner just spent $100,000 remodeling the property.

The other home hasn't been updated in 25 years.

Should they have exactly the same market value?

Probably not.

A computer model may not fully understand differences involving:

• Interior condition
• Quality of renovations
• Deferred maintenance
• Views
• Lot usability
• Landscaping
• Noise
• Traffic
• Street location
• Unpermitted additions
• RV access
• Acreage characteristics
• Interior layout
• Overall presentation

Those things can matter enormously to an actual buyer.

High Desert Properties Can Be Particularly Difficult to Compare

This becomes even more important in the High Desert because our housing stock can vary tremendously.

Consider the difference between:

A tract home in Victorville.

An acreage property in Oak Hills.

A waterfront home in Spring Valley Lake.

A horse property in Phelan.

A retirement-oriented property in Apple Valley.

A lower-priced property in Adelanto.

These homes may all technically be part of the broader High Desert real estate market.

But they don't necessarily attract the same buyers or behave the same way.

That's one reason an automated valuation that works reasonably well in a neighborhood filled with highly similar homes may have more difficulty when properties are unique.

Sold Properties Tell Us About the Past

There's another issue homeowners should understand.

Comparable closed sales are extremely important in real estate valuation.

But by definition, a closed sale tells you about a transaction that has already happened.

The property was listed.

A buyer made an offer.

The transaction went into escrow.

The transaction eventually closed.

By the time that sale becomes part of the historical data, the market may have moved.

In a relatively stable market, that delay may not create a major problem.

In a rapidly changing market, it can.

Why Pending Sales Can Be Important

Real estate professionals can also look at what's happening right now.

What's active?

What's pending?

What's sitting?

What's receiving multiple offers?

What's reducing its price?

What's falling out of escrow?

Which price ranges have strong demand?

Which properties aren't getting showings?

That information can provide context that historical closed-sale data alone may not capture.

Of course, the final sales price of a pending transaction generally isn't known until it closes.

But pending activity can still provide useful clues about the direction and strength of a local market.

AVMs Can Have Trouble When the Market Changes Quickly

This was one of the main points of our original newsletter.

When a real estate market changes direction rapidly, historical information can lag behind what's happening on the ground.

Imagine prices are falling quickly.

An automated model relying heavily on previous closed sales may initially estimate values higher than buyers are currently willing to pay.

Now reverse it.

Imagine buyer demand suddenly increases and prices begin moving upward quickly.

Historical closed sales may initially make the market appear lower than current buyer behavior suggests.

The faster a market moves, the more important current local information becomes.

So, Is a Zillow Estimate Wrong?

Not necessarily.

That's not the point.

An automated estimate can be a useful starting point.

If you're simply curious about the approximate value of your property, an AVM can give you information in seconds.

The mistake is treating that estimate as though it's an appraisal or a guaranteed sales price.

Those are very different things.

Think of an online estimate as one piece of information—not the final answer.

Zillow Estimate vs. Real Estate Agent Market Analysis

A knowledgeable local real estate agent can evaluate information an automated model may have difficulty interpreting.

For example:

How does your condition compare with the competition?

How desirable is your particular lot?

Are buyers paying premiums for acreage?

Does your home have RV access?

How important is the view?

What upgrades are buyers actually paying for?

What competing homes are currently available?

What has been sitting on the market?

What just went pending?

What price reductions are happening?

That's why a Comparative Market Analysis, or CMA, prepared by an experienced local agent can be useful when you're considering selling.

The agent isn't merely looking at a number.

They're interpreting the market around the property.

What About an Appraisal?

An appraisal is different again.

A licensed or certified appraiser performs a professional valuation according to applicable appraisal standards and methodologies.

An AVM, a real estate agent's CMA, and an appraisal can all involve property and comparable-sales data.

But they serve different purposes and shouldn't be treated as interchangeable.

If you're actually making an important financial decision involving your property, understand which type of valuation you're looking at.

Pricing Too High Can Cost a Seller

This is where relying too heavily on an automated estimate can become expensive.

Suppose an online website estimates your home at $525,000.

You naturally like that number.

But buyers looking at comparable properties are treating your home like a $475,000 property.

You list at $525,000 anyway.

What happens?

The property sits.

Buyers begin wondering what's wrong with it.

Eventually you reduce the price.

Meanwhile, the best initial marketing period has passed.

That's why sellers shouldn't ask only:

What does the website say my house is worth?”

They should ask:

What are buyers actually paying for homes like mine right now?”

Online Estimates Can Also Be Too Low

The opposite can happen.

An algorithm may not recognize why your particular property deserves a premium.

Maybe you have a highly desirable view.

Maybe your acreage is considerably more usable than nearby properties.

Maybe you've completed substantial upgrades.

Maybe waterfront location, RV facilities, additional structures, or another unusual characteristic changes how buyers perceive the property.

If an automated estimate doesn't adequately account for that distinction, it could underestimate what the market may support.

Again:

The number is a starting point, not a verdict.

Real Estate Is Hyper-Local

This has become one of the recurring lessons we see in High Desert market data.

There isn't simply one High Desert housing market.”

Conditions can differ significantly between Apple Valley, Victorville, Hesperia, Oak Hills, Spring Valley Lake, Adelanto, Phelan, Pinon Hills, Barstow, and surrounding areas.

They can also differ within the same city.

And even within the same neighborhood, price range matters.

That's why broad national data—and even broad local averages—can't always tell you what your individual property is worth.

If You’re Thinking About Selling, Use More Than One Number

There's nothing wrong with checking Zillow or another online home-value tool.

Use it.

Then gather more information.

Look at recent comparable sales.

Look at current competition.

Look at pending activity when available through your real estate professional.

Consider your property's condition and unique characteristics.

And talk with a real estate professional who actually understands your local market.

For a major financial asset like your home, a little additional research is worth the effort.

The Bottom Line

Online home-value estimates are convenient tools.

They're fast.

They're interesting.

And they can provide homeowners with a useful general reference point.

But they don't walk through your house.

They don't experience your view.

They don't smell the neighbor's five barking dogs.

They don't necessarily understand why one five-acre parcel is dramatically more usable than another.

And they don't always capture a rapidly changing local market immediately.

So the next time an online website tells you exactly what your house is worth, remember:

It's an estimate.

If you're actually preparing to make a decision involving one of your largest financial assets, combine technology with current, local, property-specific information.

Have a Title or Escrow Question?

We're Bobby Tarango and Mike Arias, sales representatives with Chicago Title, and we work with real estate professionals throughout the High Desert to support their title and escrow needs.

Through ChicagoTitlePro.com and TitlesEverything.com, we share real estate information and resources designed to help real estate professionals, buyers, sellers, and property owners better understand the housing market, title, escrow, and the many moving parts of a real estate transaction.

If you're working on a transaction or have a question about title or escrow, reach out to Bobby or Mike.

Bobby Tarango & Mike Arias
Chicago Title
Title & Escrow Saleshttps://leadmarketer.com/el/assetmanager/usermedia/87308/Orignal_32_ZillowOrTrulia_CT_8.5x11.jpg