As our market has shifted over the last few years, one main concern that most people have is regarding their home’s value. It’s one thing to be “in the know” about what’s happening in the market, but how it affects you and your own net worth is a little more personal. After the whopping 12 interest rate increases that happened between 2022 and 2023, home values definitely took a hit with all of that volatility, but they’ve fortunately begun to slowly recover since then. If you’ve paid attention to what your neighbors' homes have sold for recently, you might have some idea of what your home could be worth, but it’s still not the whole picture. For many that are curious and want a “rough estimate”, they turn to one of the many different websites that offer a home value estimate for an answer. Websites like Zillow, Redfin, or Realtor.com, just to name a few. These are three of the biggest, but there are many others. One thing they all have in common is that there’s generally very little consistency in their estimates. As an example of this you can see in the home below that there are three vastly different estimates given on the same day, ranging from the low $600’s to the low $700’s. Ultimately, this home sold for $750k, which is far better than the estimate given by Redfin. All too common, however, these estimates come in well above what the subject home could reasonably sell for and it gives the homeowner an unrealistic perspective on their home’s value. Either way, the entire reason homeowners are going to these websites in the first place is to try and understand their current value, when the reality is that they usually leave more confused or misinformed than when they started.
So, why is it that these apparently sophisticated websites can be so wildly inaccurate and inconsistent? To start with, their value estimate is derived from a computer algorithm rather than a knowledgeable human being. These algorithms are proprietary so we don’t know what factors are considered in estimating values, but it can certainly be said that the computer doesn’t know much about the house in question. This matters because value is quite subjective and knowing what a certain attribute may or may not be worth can be tricky and can be hard to really assign a number to. Square footage, bedroom & bathroom count are only some of the many important variables. A good example of this would be how one values an open view behind the house. One home might back to the open expansive desert while another backs to a mountain. One home might have a wash behind it but it has houses on the other side that can see into their windows, or worse yet a street. Are 8 foot ceilings worth less than 9 or 10 foot ceilings? Is the cul-de-sac lot really worth much more than the interior middle of the street, and does a pool or solar really add much to the value of a home? These are all very relevant points to consider, not to mention the myriad differences in upgrades, finishes, or layouts of a home. What the computer algorithm lacks is experience and knowledge of these things as it relates to what a home can actually sell for.
In all of this, knowing the specific home and how it compares to other sold homes in the area still doesn’t entirely answer the question of value. As we talk about regularly in this newsletter, the current conditions of the market have as much to do with your value as the comps. During the boom years of ‘20-’22, it was nearly impossible to really determine just how much a home might ultimately sell for. The best estimate could still be 10’s or 100’s of thousands of dollars lower than the ultimate sales price. The reverse of this was true, of course, during the great recession of ‘07-’11. This is why having a professional who understands the market as well as the factors that most directly affects value is so crucial if you are to really have a good understanding of your home’s value and your position in the market. So, if you’re thinking of selling sometime in the near future and would like to discuss your home and your specific situation, please give me a call. I’d love to talk nerdy with you :)