It's Online But Off Price
Inaccurate data often skew websites' home-value estimates
Until recently, folks buying or selling a home had to rely on local real-estate agents to figure out how much a house was really worth. Their closely held "multiple listing services" were the best source of information around.
All that is changing with the advent of home valuation websites like Zillow.com, Cyberhomes.com, and HouseFront.com, which make getting a read on a home's worth as easy as a few mouse clicks. Just type in the street address and, presto, complex computer programs instantly compare the house with online databases containing as many as 100 million property records.
Within seconds, up pops not only a dollar estimate of the home's worth but also a screen full of other previously hard-to-get information, such as what the house sold for in the past and what buyers have recently paid for comparable properties. Some sites even help you bypass the agent entirely and post an online "for sale" listing, or E-mail an unsolicited offer directly to the owner.
With brokers still demanding sales commissions of up to 6 percent of a home's sale price, buyers and sellers who use the new online tools to help close the deal themselves can split the difference and save thousands of dollars.
Indeed, most industry observers agree that these new sites have the potential to help revolutionize real estate, perhaps even doing what Zillow.com's founders, who previously created Microsoft's Expedia.com travel site, did for the buying and selling of airline tickets. "I'm not saying full-fee brokers will ever go away," says University of Chicago economist Steven Levitt, coauthor of the book Freakonomics. He predicts the profession will continue to survive at the high end, much as travel agents turned "travel counselors" do now. "But with all the data available on these new websites, and places like craigslist where you can list your home free of charge, sellers will have more and more options."
Buggy. But the promise of a perfectly transparent market, in which people know all they need to know to make a buy or sell decision with the click of a button, is still a long way off. "You'll get much better advice from a good agent who knows the neighborhood cold," says industry consultant Steve Murray, who notes that the computer programs and databases are still full of bugs.
Zillow notes on its website that its estimates have about an average 7.2 percent variance nationwide from actual selling prices, and even larger gaps in places like New York City, where it is typically 9.5 percent, or about $35,000,on a median-priced home.
Indeed, a U.S. News analysis of computer-generated estimates around the country found that the automated programs missed the actual sale prices of recently sold homes by an average of about 15.5 percent, in one case missing the mark by close to 78 percent (table below).
Their collective Achilles heels are the public-records databases used to gather most of the information, such as city and county records of sale prices, square footages, and numbers of bedrooms that are often inaccurate. Even worse, those records can't reflect hard-to-quantify features like a good view, a quiet street, or a recently remodeled kitchen.