There are countless real estate listing websites that offer online property valuations. Homebuyers will often use these tools to estimate how much a particular property is worth. However, it is important to understand that these tools are not always accurate.
While this can be a useful starting point when assessing a property, the big question that every buyer should be asking themselves is how much they can trust this number.
In truth, you can’t trust these numbers. To understand why you must understand how property values are estimated.
How is a Property’s Value Calculated?
To come up with an estimated value for a property, most of these websites will use publicly available data. This data includes things like:
– Recent sales in the area
– The number of bedrooms and bathrooms
– The size of the property
This data is then plugged into an algorithm which estimates the value of the property. These algorithms are not perfect, which is why the estimated values are often inaccurate.
The real estate market is also constantly changing, which means that the data these websites are using may be outdated. This means that the estimated values could be even further off from the actual value of the property.
Typically, the valuation will be performed by one or more of the following four professionals:
- Real Estate Agents
Most agents (buyer agents or listing agents) will assess a property’s current value by performing a comparative market analysis) (CMA). This involves looking at similar properties that have sold in the area recently and using them to estimate the value of the property in question.
- Appraisers
An appraiser will visit the property and take into account a range of factors, including its location, condition, size, and any upgrades or features that add value. They will also look at comparable sales in the area to determine an accurate value for the property.
- Property Valuers
A property valuer is a professional who is licensed to estimate the value of a property. In most cases, they will use comparable sales data as well as their own experience and knowledge to come up with an accurate valuation.
- Bank Assessors
When you apply for a mortgage, the bank will send out an assessor to value the property. The assessor will determine how much the property is worth and how much money the bank is willing to lend you.
How Do Online Property Valuations Work?
While valuation tools can sometimes be reasonably close to the actual value of a property, they are not always accurate. This is because they use algorithms that are not perfect and the data they use may be outdated.
Below are a few reasons why they usually get it wrong.
Incomplete Data
Most of these valuation tools use data that is publicly available. However, this data is often incomplete. For example, it may only include information on properties that have sold recently and not those that have been listed for sale but not sold. This means that the data they are using is not representative of all properties in the area and could be skewing the results.
Outdated Data
Another issue with the data these websites use is that it is often outdated. The real estate market is constantly changing, which means that the data used to estimate values could be out of date. This means that the estimated values could be inaccurate.
Inaccurate Algorithms
These websites also use algorithms to estimate property values. However, these algorithms are not perfect and can often produce inaccurate results.
So, while online property valuation tools can be a helpful way to get a general idea of how much a property is worth, you should not rely on them for an accurate estimate. The only way to get a truly accurate value for a property is to have it appraised by a professional.
Final Thoughts
In the digital age, it’s often quick and easy to get an idea of how much a property is worth with an online valuation tool. However, these tools are not always accurate and should not be relied on for a truly accurate estimate. The best way to get a property valuation is with the tried-and-true method of a professional CMA by a real estate agent or appraiser. They understand that a property valuation is about more than just the numbers; it’s how you interpret those numbers.
For those about to embark on their home-buying journey, arrange for a meeting with a local buyer’s agent. They have the knowledge and experience to help you understand a home’s actual market value before making an offer.
