People log into websites to check on the “value” of their home for many reasons. It could be curiosity, contemplation for possibly listing their home, or to check on equity that might be present. How do these valuation tools work and, is it close in accuracy? How does a Comparative Market Analysis (CMA) compare?
One of the major websites for this is Zillow. The “Zestimate” home valuation tool is Zillow’s estimated market value for a home, computed using a proprietary formula. It is a starting point in determining a home’s value and is not an official appraisal. The “Zestimate” is calculated from public and user-submitted data. A proprietary formula means a formula to which the owner or developer has all rights and privileges. In other words, Zillow’s formula uses general tax records data and sales information of properties within a determined mile radius from the location of interest regardless of community differences, condition and location. For example, the home within a high end planned community is compared to, and averaged in with, the sale of a home that is not in that community but falls within the mile radius of the property of interest.
The next highest used website is Trulia.com. The placement of the address in the search bar offers an average “listing price” for similar homes in the area. This is a preliminary idea of what others are trying to sell their properties for and not what they have sold for. There are several others that can be used such as; Redfin.com, Realtor.com, plus many more.
The use of general use data from tax records or information of listed properties doesn’t take into account the specifics of location, whether the home is in a planned community or just outside of the planned community, condition, size or quality of the home. It uses an average of surrounding homes and this can lend itself to vast differences in comparison.
On the other hand, when a realtor performs a CMA on a home, they use more specific criteria to location and uses adjustments to the most comparable homes either adding or subtracting features to get to a more accurate valuation. This is more accurate than using a website valuation tool but not as complete as an appraisal.