On Wednesday, the Federal Open Market Committee said that it would accelerate its tapering of agency mortgage-backed securities and signaled that its schedule for increasing the federal funds rate would be pushed as well.
Looking at homes online, it’s hard to get away from estimates of home values. Are these online amounts the same as an appraisal? No — and you shouldn’t rely on them. While they can be useful shopping tools, neither Zillow’s Zestimate or Redfin Estimate or accurate. They are both based on computer programs that average sales prices and offers throughout different areas and regions. How inaccurate could they be? Apparently, the CEO of Zillow sold his own home in Seattle for 40% less than the Zestimate showed for his property.
Both Redfin and Zillow advertise that their estimates are very accurate. According to Redfin, if a home is offered for sale, its estimates have an error rate of 1.77%. When a home isn’t for sale, Redfin says that its margin of error is 6.66%. So, if Redfin said a home’s estimated value was $500,000 and the home was off the market, the actual appraised value or sales value could be $33,300 lower or higher – or within a range of $66,600. That’s a pretty large margin of error.
Zillow doesn’t differentiate between its estimates for homes that are on sale vs. those that are off the market. For all of its properties, Zillow says that the error rate for its Zestimates is about 4%.
Redfin has about 75 million properties in its database while Zillow has 110 million properties.
In the end result: not much. The rates of error could be much higher or lower depending on the neighborhood you’re considering, how many homes are for sale, what type of real estate market you’re shopping in, and individual factors influencing a home’s desirability. As people are getting more accustomed to seeing these estimates and comparing them to realistic offers and sales of homes, they’re becoming less influential. A few homeowners have reportedly sued Zillow — unsuccessfully — because they believed their Zestimates were too low.
The online real estate websites can provide valuable information, but they’re not an effective substitute for working with an experienced real estate professional.
