Buyers beware when using online home-price estimators

Great real estate agents should always communicate openly with their clients about the pros and cons of online home-price estimators.

The need for quick, accurate information in today's society cannot be overstated. This is especially true for real estate, and information like property data or real estate property records can be a serious boost for any professional. However, on the consumer side of the coin - tools like online home-price estimators could negatively affect the marketplace.

Therefore, great real estate agents should always communicate openly with their clients about the pros and cons of these resources, because the repercussions of not doing so might actually be felt throughout the entire housing market.

Why online home-price estimators can be inaccurate
According to Clifford Rossi, in an article for American Banker, online home-price estimators are an attractive tool in today's real estate segment. Prospective homebuyers and sellers enjoy using this feature, which takes property data and attempts to predict a home's possible selling price. The problems arise when these people aren't aware of the possible inaccuracies with the information, which could result in price volatility and even impact sales.

One reason why online home-price estimators might not be accurate is because the offices behind the data could be behind, Rossi explained. In the real estate market, prices change fast and often. Comparing a home on the market to a similar home that sold six months ago probably won't provide an accurate price. Data could lag behind as much as half-a-year or more in some regions, so buyers and sellers could be faced with incorrect information.

Also, even if the data is up-to-date it could still be wrong, according to Rossi. Square footage might differ from the actual total, and online home-price estimators have been used by financial regulators and banks as a means to cut processing costs in the past. Limitations have been discovered by these agencies, such as the inability to accurately compare rural homes, custom properties or other nonstandard features. In that case, the house a person is looking at might not be properly priced via these tools. Instead, real estate agents should make clients well aware of the pitfalls, and possibly recommend a home appraisal professional as an alternative.

Courthouse Retrieval System can offer detailed mortgage records, property data and more. A highly-accurate collection of valuable information saves real estate professionals a trip to the local courthouse.

Valuation process may need a change
As some homebuyers and sellers start to use online home-price estimators more frequently, the reliance on automated valuation models increases. These tools might not be as accurate as a professional, and some could also be concerned that it could signal an end to home appraisers everywhere.

However, Joan Trice, in an article for Appraisal Buzz, noted that there are pros and cons to these AVMs. A bigger problem with the appraisal industry could be current policy, instead of new technology. Market value is defined in a way that lowers the importance on price, and instead asks appraisers to focus more on value. Simply comparing one price to another can be done by a machine, Trice explained, but professionals who want to excel should try to focus on the more human elements of the industry - like the subtle nuances of each property.

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