It’s Something Every Homeowner Does When They Decide to Sell
Obsessively check the estimated home value of their property on the websites of the big real estate “brands.” Opendoor, Zillow and Redfin have made it easy to give an idea of what to expect when offers come in — and a peek at what the homes of your neighbors, friends, and family are worth, too. However, like any tool or service that hints at certainty for things that are uncertain, the projected answer might not quite match your reality. In fact, the estimates might not even match from brand to brand.
Understanding What Goes Into an AlgorithmEvery brand’s algorithm is different. There are hundreds (maybe even thousands) of different data points that influence the price of a home: Interior and exterior features, the age of the home, the square footage, and the location, just to name a few.
Even if each brand included the same data points, the algorithm would weigh them differently. After all, some factors are just more important to a home’s price. Stainless steel appliances won’t affect the value as much as square footage. Yet square footage might not matter as much as the neighborhood.
Both of these elements of an algorithm come into play with comparable sales, a critical part of any home evaluation. In order to find the prices of recently sold homes that are similar to yours, the algorithm needs to find the properties that fit the bill, then evaluate those properties against yours.
How Opendoor Calculates Home ValuesFirst, Opendoor is upfront about the goal of their calculations: To buy your home. Instead of thinking of it as a home value, it’s really an offer.
Opendoor does utilize a data model to come up with a number, the process starts with what you tell them about your home’s condition, features, and updates. There are options for submitting photos of your home in order to back up what you’ve told them, but it’s really about what you can tell them.
Using this information, Opendoor runs its data models on comparable homes that were recently sold and local market trends. The algorithms that involve local data were reviewed by pricing teams who have some knowledge of the area. Opendoor also says the algorithms consider the difference in the time of year between comparable home sales.
How Zillow Calculates Home ValuesA Zillow “Zestimate®" is perhaps the most well-known of the big brands. Though it’s noted that this value isn’t to be considered a replacement for market analysis, this figure is what many people think of when they’re talking home values.
Calculations depend on publicly available information, like past sales, mortgage records, tax assessments, and building documents. The formula doesn’t consider the “intangibles,” upgrades, or even new appliances. While you have the ability to update info about your home and correct inaccuracies, only information deemed significant will change the value.
If your area doesn’t include a lot of information in public records, or if your region doesn’t have a lot of transactions to analyze, it’s harder for the algorithm to arrive at a value.
Accuracy can also differ depending on the market. A comparison of top metro areas by Zillow shows that the home value was within 5% of the final sales price 62.7% to 92.8% of the time.
How Redfin Calculates Home ValuesThe “Redfin Estimate” of your home draws on data found in multiple listing services to arrive at a value for your home. Redfin mentions that more than 500 data points are considered, including market and neighborhood info, whether the home has water views or if it's located on a busy street.
Machine-learning software crunches the numbers frequently: The values are updated daily for homes on the market, and weekly for those off the market. Unlike Zillow, you can’t update any info about your home that could potentially impact the value.