How Trustworthy is an Online Property Valuation Tool?
If you’re taking steps to purchase a home that will serve as an investment property or secondary residence, identifying the current property value is highly recommended to make sure that you don’t overpay. There are numerous online property valuation tools that you can use to calculate current property values.
These tools are offered by websites like Redfin, Zillow, and Trulia. While it’s possible for online valuation tools to provide you with accurate and trustworthy estimates, there’s also a chance that the estimate you receive will be inaccurate. The following delves into online property valuation tools and if you should use them.
What Are Online Property Valuation Tools?
Every online valuation tool uses publicly available data to estimate the value of a property. This data is sent through various computer models to make a relatively accurate estimate. Even though most tools will provide similar calculations, they all have different formulas and data that they base the calculation on. Primary data sources include everything from multiple listing services to public records.
When looking at a tool like Zillow, it’s possible for consumers to create a free account before adding data into the property valuation tool. The consumer has complete control over which pieces of data are used when creating the estimate. Redfin uses specific public records data and comps to arrive at an estimate, after which it’s possible for you to send an email if you feel that the estimate is inaccurate.
How Online Property Valuation Tools Work
Online property valuation tools typically obtain publicly available data and information, which includes information like:
- The total property size
- Number of bathrooms and bedrooms
- Recent sales in the nearby area
Once the right data is gathered, it’s placed in an algorithm or computer model that estimates what the property is currently valued at. Keep in mind, however, that the algorithms used by online property valuation tools are oftentimes inaccurate or outdated. These valuations can be performed by:
- Real estate agents
- Property valuers
- Home appraisers
- Bank assessors
Why These Tools are Sometimes Inaccurate
These tools can be inaccurate for many reasons, which is why you shouldn’t solely rely on them when trying to determine if a property is worth the sale price. For instance, these tools typically work with incomplete data by only capturing data on recently sold properties and not ones that haven’t been sold but are currently listed. As such, the information isn’t representative of every property in the vicinity.
The data may also be outdated, which is a common issue with online property valuation tools. Keep in mind that the real estate market is changing on a day-to-day basis, which means that an online property valuation tool may be basing its estimates from old data that’s no longer accurate.
Another problem with online valuation tools involves inaccurate algorithms. As mentioned previously, every website that offers a valuation tool uses its own algorithm to arrive at an estimate. However, not every algorithm is effective at calculating what a property is valued at. Even though the estimate you obtain from one of these tools should be in the ballpark of what the property is valued at, the only way to obtain a truly precise value for a property is by having it appraised.
When to Consider an Appraisal
Unless you’re buying a home or investment property with cash only, you’ll be tasked with applying for a loan. During the loan origination process, lenders usually require an appraisal before closing on a loan. Once a professional appraiser performs the appraisal, you’ll be given a more accurate idea of what the current property value is.
The appraiser looks for any visible defects in the home that could affect the property value or safety for anyone who lives there. Keep in mind that every home appraiser must obtain extensive education and training before they’re able to receive a license.
Using an online property valuation tool is an easy way to obtain a rough estimate of what a property’s valued at. However, there are several reasons why this data can be inaccurate, which include everything from the tool using incomplete data to the algorithm being incorrect. Instead, it’s highly recommended that you have the property appraised before you make your offer. That way you can avoid any issues when it’s time to make the offer.