Pricing a home in any market isn’t easy. Home valuation is part science, part art and for the most part based solely on historical sales. In a seller’s market, where homes are appreciating monthly, Realtors who strictly rely on MLS sales data may very well be pricing homes too low and costing their clients sizable appreciation gains. In some neighborhoods, these appreciation gains can account for 5-15% per annum of the final home sale price. The problem is, most agents don’t have the tools necessary to make the calculations on their own or know how to navigate convoluted government websites with local trend data. Thus, they resort to flawed local knowledge, neighborhood gossip or gut feelings and sadly, many homeowners are none the wiser.
To make matters worse, the industry has seen a significant consumer shift in the use of 3rd party real estate search sites like Zillow, Trulia and even Realtor.com. These sites are known in the industry to be inaccurate and incomplete however, due to their extensive marketing and mobile friendly search tools, they are wildly still relied upon by the unsuspecting consumer. Adding insult to injury, many consumers assume these sites are accurate and complete treating their home valuations as gospel. Zillow CEO Spencer Rascoff was asked about the reliability of Zillow’s home valuation estimates or “Zestimates” and he replied, “… they’re a good starting point”. It was widely reported by the LA Times that Zestimates have a median error rate of about 8%. In other words, on a 250,000.00 home, that’s a disparity of $20,000.00. Let’s also not forget, in seller driven markets where equity can increase monthly, those Zesitmates and other 3rd party home valuations can be off by even greater margins.
Finally, seller’s themselves may end up being their own worst enemy. Per the NAR 2016 Profile of Home Buyers and Sellers, it’s reported that 72% of sellers contacted only 1 agent before signing the listing agreement. By doing so, homeowners were not able to compare agents, vital analytics, marketing strategies or sales techniques. This lack of knowledge puts the homeowner at a disadvantage because they are not able to legitimize the information they are hearing from one agent by comparing it with the information they are getting from other agents working in the market.
One of the most basic things a homeowner can do to protect their potential equity appreciation is to ask the agent what the appreciation trend for their market is. If the agent can’t answer your question with certainty or doesn’t seem to understand what you’re asking, you may need to keep searching.
