How accurate are online property valuations?
There are countless websites in New Zealand that offer online property value estimates.
These can be incredibly useful at the start of the process but the question remains: how accurate are these tools, and can you rely on them to inform your sale price, or offer amount?
Emotion, impulse and other complex human factors play a huge part in property purchases.
The pros and cons of online property valuations
Alistair Helm, who has acted as CEO of more than one of these platforms, recently wrote an article in the National Business Review that looked at the accuracy of the five market leaders in online property valuation.
He conducted a brief and non-scientific review of each tool and found that they were fairly accurate, most of the time. Over his sample size of 12 properties, each tool estimated values with a margin of error under 10 per cent. Despite that fact, these platforms almost always underestimated each property’s value.
For properties in more expensive addresses, such as Milford on Auckland’s North Shore, estimates were out by as much as 19 per cent. This tells us that the complex algorithms that property valuation sites use, don’t take into account the way humans think and feel.
When buyers see an attractive property, in an enviable address, with that special x-factor, they may pay more than what the numbers and trends say they should. Emotion, impulse and other complex human factors play a huge part in property purchases after all, and they’re things that no algorithm can currently account for.
Sellers: figuring out how much your home is worth
When selling your property, you should use every tool that’s available to you, including online property valuations. They can be incredibly useful in the early stages of the process in order to get an idea of how much you can expect, but it’s important to be aware of their limitations.
Helm’s review of these platforms wasn’t comprehensive or scientific by any means, but it did reveal that these valuations tend to be low. That’s why if you’re selling property, you need help from an experienced real estate agent in your area – to draw upon their knowledge of the market and similar properties in order to come to an accurate valuation.
These real estate agents are able to draw on the same data that online platforms do, such as recent sales in the area, and past sale prices. They’re also able to understand the human element, and how buyers are likely to respond to your property.
Buyers: deciding on an offer value
Online valuations can also be useful for buyers. They’re a cheap and easy way of roughly estimating a property’s value, and discerning what an acceptable offer might be. Because they are so easily accessible and free to use, they’re ideal at the stage where buyers might be considering several properties.
You should always buy a valuation from a registered valuer.
However, again they shouldn’t be relied on alone. Speak to the agent who’s selling the property and ask for a price indication (keep in mind they mightn’t be able to provide one if it’s a deadline or auction sale). You should listen to their reasoning when they explain the property’s value.
Next, when you have your heart set on a property and you’re sure it’s the right one, it’s a good idea to buy a valuation from a registered valuer. This is the most accurate estimate of a property’s value available, and will most likely be required by your lender anyway.
Expert advice from real people
In the age of the internet, we want our information quick, convenient and cheap. That’s why online property valuations are great, however, property purchases and sales can be long and complex processes, and you may require expert assistance from a real human being.
To make sure you get your purchase or sale right the first time, speak to professionals who understand the ins and outs of the market – but also the people who buy and sell property. Get in touch with a local real estate agent today.