Computer Generated Property Estimates - How Reliable Are They?

One of the biggest questions homeowners have on their minds is “What’s my home worth?”

The ability to quickly generate a property price estimate on different online platforms is easy. But this may not be such a good thing for homeowners who are thinking of selling.

It’s important to understand these computer-generated price estimates, also known as automated valuation models (or AVM’s) are based on algorithms and data analysis that take into account what the property offers and historical sales data. These estimates can be inaccurate for several reasons:

• Lack of data: Computer-generated property estimates rely on data such as the property’s location, size and age. If there is insufficient data available, the price estimate is based on limited data and may not accurately reflect the true value of the property.
• Inability to account for unique features: A computer generated estimate cannot take into account the unique features of a property, such as its views, layout, condition, location or any recent renovations.
• Market fluctuations: Real estate markets or local market conditions are constantly changing, and computer-generated estimates may not be able to keep up with these fluctuations.
• Algorithm limitations: The algorithms used by AVMs may not be able to accurately assess the impact of certain factors on property values, such as the rarity of a particular property, the desirability of a particular neighbourhood or the quality of local schools.
• Lack of transparency: Computer-generated estimates are often based on proprietary algorithms that are not fully transparent, making it difficult to understand what factors were considered and how the estimate was generated.
• Lack of human judgment: A property valuation often requires subjective judgments that a computer algorithm is not be able to make, such as evaluating the quality of workmanship and finish.
• Human error: AVMs can be programmed incorrectly or may be used incorrectly by human operators, leading to incorrect estimates.

Homeowners should only use computer-generated price estimates as a starting point for getting a general idea of the value of their property. It’s important to remember that decisions related to real estate are often complex and should not be made solely based on a single estimate, because this could lead to making a poor decision that could have negative financial consequences.

There is a reason why they are called estimates – that’s all they are. Sometimes they can be too high and other times too low.

An appraisal from a reputable real estate agent is the best way to get an accurate assessment of the potential selling price of a property in today’s market.