Can online home-pricing tools get it right?
Determining an accurate listing price
By Bernice Ross, Tuesday, July 14, 2009.
Overpricing your listing can cause your property to sit on the market for months. How can you tell what the correct listing price is for your property?
Last week's column looked at four of the most common mistakes that can cause sellers to overprice their property. Today's column provides a case study that illustrates the steps you and/or your listing agent must take to properly set the correct price for your property.
If you're like most sellers, you want to obtain the highest possible amount from your real estate sale. With the creation of online automated pricing tools such as those provided by HomeGain.com and Zillow.com (there are several others but we'll use these as examples), many sellers have turned to these tools as a way to establish what their property is worth.
These tools can be a good place to start, but they can also be wildly inaccurate. For example, my current property valuation on Zillow is about 28 percent higher than what the property would sell for in this market. On a $400,000 sale, that would mean that my list price would be $112,000 too high.
To understand how to be more accurate about pricing your property, examine the following case study based on a 1,250-square-foot house situated on a 6,000-square-foot lot in California.
What do the online evaluation tools say the property is worth?
HomeGain's value estimate ranges between $428,000 and $502,000, while Zillow estimates the value at $373,000. As a seller, I would love to get the $502,000. As a buyer, I would want to pay $373,000. Which number is correct?
For the property in this example, Zillow had 86 comparable sales that have closed in the last six months. The HomeGain site included 10, some of them dating back to 2007. Clearly, closed sales prices (also known as "comparable sales" or "comps") from 2007 are going to be substantially higher than sales from 2009.
The challenge is determining which set of numbers is the most accurate for this particular property. The first step is to make sure you have selected the most appropriate comparable sales. Is each of the comparable sales in the right area?
The property in this example has more value if it is south and west of the two major boulevards that divide the city. In this case, the closer the property is to the beach, the higher its value. ...CONTINUED
All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.
You must login or register to post a comment.
Submitted by Sean OToole on July 14, 2009 - 1:16pm.
You said: "There is no way that a computer can evaluate the desirability of the floor plan, the value of a full or partial view, or a host of other factors that influence the sales price."
Keep in mind that the larger issue is that the computers simply don't have access to information about the floor plan, view or the other factors your refer to. Automated valuation models (the technical name for the computer algorithms that generate these prices) unfortunately have to make their determination from the limited information available from the county assessors office. This is often little more than the number rooms, bedrooms and bathrooms, the square footage, lot size and property type. In my town we have properties with identical characteristics that are on a park, a lake, and on the CA Delta. Values between the 3 differ by $200k - with no realistic way for a computer to tell any difference.
In my humble opinion Zillow and the other services providing estimated values have done more to the prove the value of a good real estate professional then anything else we've seen in the last 10 years. I think most people now realize these values can't be relied on and that local expertise is necessary to determine value.
Sean O'Toole
Founder / CEO
ForeclosureRadar.com
ForeclosureTruth.com
Submitted by Jay Thompson on July 14, 2009 - 2:25pm.
Sean -
I wish I had your faith that most people now realize that AVMs can't be relied on. I hear all the time, "But Zillow says..."
However as you point out, this is a *prime* opportunity to help enlighten folks. Most will listen, and see the value we can provide. Some won't. In those cases, we decline the listing. Odds are overwhelming that an agent coming in right after us will list at whatever price the seller wants. For some strange reason, these homes never seem to sell...
Jay Thompson
Broker / Owner
Thompson's Realty
Blog: www.PhoenixRealEstateGuy.com
.
Submitted by Debra Sinick on July 14, 2009 - 5:00pm.
This is a great piece! It tells it like it is. It's great to look at any of these websites to get a "ball park" idea of value, but nothing will substitute for actually getting inside the house and knowing the actual competition.
Pricing is determined by these "hardcore" numbers, the facts, coupled with an understanding of the marketplace and the current competition. Establishing a price in today's market should be based on all of the above factors, not just the numbers.
Debra Sinick, GRI,CRS
Windermere Real Estate/East,Inc.
Kirkland, WA
425-260-3219
www.eastsiderealestatebuzz.com
www.debrasinick.com
Submitted by Debra Sinick on July 14, 2009 - 5:00pm.
This is a great piece! It tells it like it is. It's great to look at any of these websites to get a "ball park" idea of value, but nothing will substitute for actually getting inside the house and knowing the actual competition.
Pricing is determined by these "hardcore" numbers, the facts, coupled with an understanding of the marketplace, and the current competition. Establishing a price in today's market should be based on all of the above factors, not just the numbers.
Debra Sinick, GRI,CRS
Windermere Real Estate/East,Inc.
Kirkland, WA
425-260-3219
www.eastsiderealestatebuzz.com
www.debrasinick.com
Submitted by Spencer Rascoff on July 14, 2009 - 8:06pm.
Bernice,
Spencer from Zillow here. Another excellent article.
I definitely agree that online valuations like the Zestimate are just a starting point, and consumers should definitely seek advice from an agent or an appraiser in order to get a better sense for what their home is worth.
Here's a video with more info on the Zestimate, and its limitations: http://www.youtube.com/watch?v=Vuloq6S6MLM
Submitted by Scott Farrell on July 15, 2009 - 3:38am.
I am passing this article on to all of our agents. Our agents are cosntantly being judged against what the consumer believes is good information from the internet. Material like this gives them a way to talk about the accuracy of online products and allow them to show the correct absorption rates.
Submitted by Jerzy (George) Szkup on July 17, 2009 - 2:38pm.
George Szkup
www.DestinationTucson.biz
Bernice,
Good article (as always) - I noticed that no one disagrees with you! I summarized this good information twice on Twitter @geoszk - perhaps somebody will read it?
George from Tucson
http://www.DestinationTucson.biz
Submitted by Beth Smith on July 21, 2009 - 4:31am.
A great test. Put your own house in Zillow or any website. You at least should know your neighborhood, its schools, its amenities and other characteristics. I did and it was $60,000 too high based on the actual sales price after inching down for over a year. An appraisal on my refinance distorted the value and it took far too long to sell.