You're likely to get a warm and fuzzy feeling if you look at what your home is worth on Zillow, Trulia or any of the other real estate sites that provide values for millions of houses. Home prices have risen rapidly, and the value these sites assign to your home is sure to reflect that.
But don't carried away by a single Zestimate, SmartZip quote or Trulia estimate. While they are fine for spotting trends, these home valuation services come with a caveat: They offer rough approximations by computer programs.
If you want a more precise estimate, hire an appraiser, talk to a real estate agent or check around your neighborhood and see what homes are selling for.
The sites all use what's called "automated valuation models," or AVMs, to make sense of mountains of data, typically drawn from recent sales, property history, size and number of rooms, market trends and other factors that influence price.
"Depending on their methodologies, the values are going to necessarily be pretty wide," said Gary Painter, director of research at the University of Southern California's Lusk Center for Real Estate. "They basically are trying to provide an estimate for every property in a geographic zone. The data modeling requirements are far too great to do what they are claiming to do."
But while not reliable for determining the precise value of a particular home, the services "do a decent job of capturing the overall trends in prices, which gives you a sense of how your particular house fits in a neighborhood," Painter said.
Real estate agents used to hate online valuation sites — and many still do — because they can give a buyer or seller false expectations about price. But some real estate professionals have come around to viewing them as useful tools.
"I actually find value in those estimates and advise my clients to look at them," said Linnette Edwards, an agent with Better Homes and Gardens Real Estate in Piedmont, Calif. "I also caution them that frequently the numbers can be incorrect. It's just an algorithm."
Edwards thinks Zillow's Zestimate undervalues her own property by $100,000. "But as a buyer looking to purchase a property, there is a lot of insight that can be drawn from these Zestimates."
Appraisers are cautious if not skeptical about the services: Sandy Bass of AA Action Appraisal in Sunnyvale, Calif., and Silicon Valley chairwoman for the Appraisal Institute, said she's sometimes asked by a homeowner if she uses Zillow. "I always say, 'No, I don't because it's sometimes incorrect.' "
To illustrate her point, she checked the Zillow, Trulia and ZipRealty values on a home in Santa Clara, Calif., that sold in late October for $601,000. Zillow said it was worth $615,000, Trulia said $743,000 and ZipRealty said $629,000.
Zillow provides values for 100 million homes in the United States. ZipRealty provides what it calls a SmartZip estimate. It also provides estimates from Zillow and eppraisal.com. And it has an "interactive pricing tool" that you can use to build your own estimate.
"One of the reasons we show three different values on our estimates page has to do with the nature of AVMs," said Jamie Wilson, ZipRealty's vice president of technology. "The AVM is just an automated valuation model for any given home. Because it's automated, it's really subject to whatever the details are that make up that model. When we started digging, we found some models might be accurate in certain areas and others might not be as accurate."
A recent search with SmartZip on a three-bedroom home in San Jose, Calif., produced these widely varying estimates — $568,000 from eppraisal.com, $740,000 from Zillow, $760,000 from Trulia and $699,000 from ZipRealty.
These figures are averages of high and low estimates, which helps to explain the variation. Zillow and ZipRealty had almost the same high-end estimates, but ZipRealty's low-end estimate was $91,000 less than Zillow's.
Zillow, the online website that pioneered free home valuations for consumers, refreshes its data on 100 million homes three times a week, using "hundreds" of models, said Katie Curnutte, director of communications for Zillow.
"We provide a value range," she said "The house will sell somewhere in that value range, depending on the condition. It is a starting point; it's not an appraisal. We can't go into a hundred million houses every week and check them out. We don't know if you added a bedroom or remodeled a kitchen, or you're letting the roof go."
Zillow and Trulia provide figures for the accuracy of their estimates. Zillow measures accuracy every three months by comparing houses that sold to their Zestimate the day before they sold, Curnutte said.
"The goal is to get as good as a computer model possibly can get," she said. "Nobody thinks a computer is going to be able to tell you completely accurately what a house will sell for tomorrow."
CoreLogic, which has developed a variety of valuation models it sells to the lending industry, investors and others, cautions that the popular sites that provide free estimates to consumers have their limitations.
"If you just put in a marble or hardwood floor and a lot of upgrades, the AVM is not going to be able to take that into consideration," said Ann Regan of CoreLogic.
"It's not intended to replace an appraiser, and for lending purposes it cannot. Somebody has to come out make sure it's still standing and has a roof on it."