Here's Why I Don't Trust Online Home Estimates

Read this before trusting a home estimate you see online.

If you are buying a property or selling one, chances are good you've looked at real estate websites. And most of these websites give you an estimate of what they think a property is worth. 

It can be tempting to trust these estimates -- especially if they make it look like the home you own is worth a lot more than you paid for it since that can seem like an attractive prospect. In my personal experience, though, I haven't found them to be particularly accurate. 

Here's why I don't really trust them anymore. 

My anecdotal experience says the estimates are off by a big margin

I have sold several houses over the past decade, and I have bought several as well. I also really enjoy looking at real estate listings and following houses, so I've probably had hundreds of homes on "watch lists" over the past 10 years.

When I've listed my own house, purchased properties, or simply watched what the homes sold for, I've found a big discrepancy between what most online estimates say the properties are worth and what the final selling price is. 

In the case of my house, for example, the online estimate was off by around 10%, which amounted to tens of thousands of dollars.  

Now, this is just my personal experience -- but actual data from some of the companies generating these estimates backs up what I've seen. When homes are not on the market, or when they are outside of major metropolitan areas, online estimates don't tend to paint a very accurate picture of what a property is really worth. 

Here's the big problem with online estimates

The big problem with online estimates is they are typically generated based on publicly available data, such as comparable sales and public records showing what a home is worth. They can't take an individual home's quirks or unique characteristics into account, and sometimes the data may be outdated. 

If a house has been improved and updated, for example, the online estimation algorithms have no real way of knowing that. Likewise, if a house has fallen into disrepair or has a much worse view than its nearby neighbors', the online algorithm can't really take this information into account very accurately either. 

The accuracy of the estimates gets even worse in areas where there isn't much turnover of homes, because this means there is not a lot of data on recent sales that the online estimators can use to determine a likely price.

Because of all these shortcomings, online estimates should be taken with a grain of salt. If you're thinking about selling your house and an estimate you see on the internet shows you'll make more than enough profit to pay off your mortgage loan in full, you should still get advice from an actual real estate agent in your area (or do a lot of independent research) to make sure your house is really worth as much as you think it is. 

Whether you're a buyer or seller, don't let these estimates deter you from getting the information you need to make the best guess as to what a home is really worth.