Dear Ray,

I’m planning to sell my home. My Realtor advised me to ignore the online estimate of value; he says the estimate is not reliable. Do you agree? Why?

— C.R.  

This is one of the most popular questions I receive from readers. Online home-value estimates are just that: an estimate. Zillow, for example, offers a “Zestimate.” Drop the “Z” and what do you have? 

From the Zillow website: “A Zestimate home valuation is Zillow’s estimated market value. It is not an appraisal. Use it as a starting point to determine a home’s value.” 

In King County, Zillow claims their “Zestimate” is accurate within 10 percent of the sale price for 57.4 percent of homes. That means your home’s “Zestimate” may be among the 43 percent that are inaccurate by more than 10 percent. 

I’ve explored several online estimators, and I’ve yet to find one that I would use in my real estate practice. There’s nothing wrong with using an online estimate to get a ballpark valuation of your home, but you shouldn’t put a lot of weight behind any automated value. 

Real estate agents have access to the “RealAVM” estimate of value through the Northwest Multiple Listing Service. Although I prefer the RealAVM estimator over others, it includes the following disclaimer: “RealAVM is a CoreLogic-derived value and should not be used in lieu of an appraisal.

Doesn’t consider upgrades

An online estimate of value is only as accurate as the data provided for determining the value. Not all online estimates contain the same amount of data. Often, online estimates of value may miss important data about your home, or they may contain inaccurate data.

In addition, online estimates won’t have information about upgrades and remodeling that set your home apart from the house down the street. There is no way to capture the added value of a Mount Rainier view or the negative impact to value if your home is located on a busy street. 

The rule is: The more unique the home, the more inaccurate the online estimate will be. For example, a custom-built home or a luxury home with many amenities will have a less-accurate value than a tract home in a planned development where there are dozens of similar homes. 

Another clue about the accuracy of automated estimates is that banks and mortgage brokers are prohibited from using online estimates of value in the loan process. To get a federally guaranteed loan, a licensed professional appraiser must appraise the property.

‘Data weaknesses’

Among the biggest challenges regarding automated value estimates is that buyers can be highly influenced by the estimates. New data shows Millennial buyers, in particular, trust online sources more than baby boomers. That could pose a problem if the estimated value of your home is significantly less than the real market value. Arming buyers with an estimated value, without providing them with a disclaimer about the limitations of automated values can impact the housing market and house values.

Clifford Rossi, Professor-of-the-Practice at the Robert H. Smith School of Business at the University of Maryland, is blunt about the use of automated value models: “AVMs may have a limited place in the real estate and mortgage business, but they remain a black box to homebuyers and most market participants, susceptible to a host of data weaknesses despite their technical sophistication. Proper disclosures and limitations on the use of such models should be made to consumers beyond the meager ones that exist today. This should be one area of focus by the Consumer Financial Protection Bureau.”

The most obvious problem with computer-generated estimates is that there is no physical inspection involved. An automated software program, no matter how sophisticated, will never replace a skilled Realtor or appraiser in determining the value of your home.

I’ll make the assumption that you’ve hired an experienced, professional Realtor. If your agent has presented you with a price opinion of your home, then you should take his or her advice about value over any online estimate of value. 

RAY AKERS has been a licensed Realtor for more than 25 years and is a lifelong Seattle resident. Send your questions to ray@akerscargill.com or call (206) 722-4444.