How to Interpret Automated Home Valuation Estimates

Many online real estate companies provide consumers with a home valuation tool that allows them to obtain an instant, estimated dollar value for their home. These tools are interesting to use and, when the result is a high estimated sale value, give the owner a great feeling about their home's potential worth, whether or not any homebuyer would actually offer them a comparable price.

Some home valuation tools allow you to alter your home's features to correct errors or see the impact of changes you might make. Some allow you to view a satellite picture of your house and give you demographics about the neighborhood you live in. Ultimately they're all pretty similar and each has its pros and cons.

The best home valuation tools provide a starting point for understanding the value of your home. Assuming the estimated dollar value they provide will be your home's sale price omits the most critical factor in your home sale-what buyers think your home is worth.

In every case automated home valuations are produced by a computer program that uses a variety of ever-changing data to derive the potential value of your home. The two primary pieces of data these programs use are as follows:

  • The sale prices of homes that have sold near your home
  • The sale prices of homes that are comparable to yours (e.g. similar number of bedrooms, baths, square footage)
While this information helps understand what a home could sell for, there are other factors which always influence a home's sale price that a home valuation tool isn't likely to know.

  • The condition of your home-if your home has a roof that needs to be replaced, is infested with termites, or needs all new wiring, then its sale price might be lower than that buyers paid for other nearby or comparable homes. On the other hand, a new roof, new appliances, and a well-kept yard might allow you to get more for your home than others might have received in the past.
  • Where your home is located-if your home is on a noisy street with lots of overhead power lines and no parking, sits next to a busy nightclub that's open until 3 a.m., or has neighbors with enough dogs to start a kennel, the price you are offered might be less than other homes sold for that were nearby but did not have these issues.
  • What is important to a given buyer-home valuation tools never know what potential buyers want. Any given buyer may find your home to be of more or less value based on what they want, not on what a computer guesses they'll want.
Another reason to be cautious about home valuation tool results is that real estate agents are wary of them, and frequently have to educate sellers to set realistic expectations about their home's likely sale price.

A real estate agent is paid a commission for the sale of your home based on its sale price. It is in their best interest to help you sell your home for the highest price possible. That's because it's their job to help you maximize the return on your home's sale. A result of getting you the highest possible sale price is that they will earn a higher commission.

Since that's the case, why do real estate agents tend to dislike automated home valuation tools?

It's pretty simple - homeowners who use home valuation tools sometimes have higher expectations of their home's worth because of the estimated value they receive from the tool. Just because data and software say that a house has a particular worth doesn't mean translates into a buyer who will pay that much for it.

Regardless which online valuation tool you use, the important thing to remember is that home valuations are computer-generated estimates of what your home might sell for, not what it will sell for. Since each homebuyer has unique preferences and needs, these estimates cannot include all of the factors that they may consider when determining how much to offer you for your home.

Home valuation tools are fun to use, provide other information that a seller or buyer may find useful, and get people interested in performing a real estate transaction. However, to get an accurate analysis of your specific home's worth in the current market you'll need to obtain a Comparative Market Analysis (CMA) from a licensed, professional real estate agent.

HomeGain's home valuation tool can be found by visiting www.homegain.com/home-values.

Copyright 2008 HomeGain.com, Inc.