Comparative Market Research…The right and wrong way.

Real Estate Agent with Sotheby's International Realty
Several months ago, my client stated that their home dropped 40% in value from purchase just 12 months ago. I was shocked! I asked them why did they think this? And they stated this was due to the research of online sites.

We have all heard from one person or another who uses figures from sites that take recent sales and do some basic crunching of the numbers to produce figures that really make — little to no sense.

As their agent, I was mortified. I looked at all the homes that has sold since their escrow closed. And did my own thorough number crunching. To my relief, the data of homes that did sell showed nothing of a decline but actually stability. In my market analysis, I evaluated the cost per sq footage of homes sold, I took into account the condition of the home, as well as the exact location, and style of the home. I also evaluated the owners’ situation – sometimes an owner has to sell due to illness or a out of state move — both of which create additional pressure to sell quickly. Internet sites do not do this as they are mostly automated and primarily make their assessments based on square footage or bed and bath counts.

The numbers produced by the sites can often mislead clients in essence providing them with inaccurate data thus this can often be a real detriment to their decision making process. The analysis of a qualified real estate is absolutely critical. In investigating the disclaimer provided by one of the sites, I found the following explanation of the value figures they provide. “The…home valuation…is not an appraisal. It is a starting point in determining a home’s value…your real estate agent or appraiser physically inspects the home and takes special features, location, and market conditions into account. Variations occur because of negotiating factors, closing costs, and timing of closing. We encourage buyers, sellers, and homeowners to supplement [our] information by doing other research such as: Getting a Comparative Market Analysis from a real estate agent.” – Zillow. They then go on to say that the median error rate for Los Angeles is plus or minus 9.8%

So while it might feel efficient to plug in an address and get a quick calculation from an internet resource, nothing is more real than a thorough analysis from your real estate expert. Use real estate agents to get real info.

Comments (4)

Andrew Mooers | 207.532.6573
Northern Maine Real Estate-Aroostook County Broker

It's an opinion of value, comparable market approach. And if the wrong comps used for sales, competing listings, the value is flawed.

Aug 11, 2010 02:10 AM
Lyn Sims
Schaumburg, IL
Real Estate Agent Retired

Great post. Shows how 'internet sites' giving values are anything but valuable. A computer can't tell if it's a 3BR model with or without a basement.  I wish the public would catch on.  You can't do a market evaluation by punching a few keys into a site.

Here's a quote from Greg Lane:  "So I asked them (buyers) if their computer could tell them how old the roof was, the age of the heat & AC system, the year the windows were replaced. I wanted to know if their 'gadgets' could see the backyard, could feel the cool breeze on the front porch or see the elm in the back yard.  A Blue Book can tell me how much a car might be worth, but it cannot see inside the engine, ir cannot smell the leather or feel the rubber meet the road."

Aug 11, 2010 02:17 AM
Thuy Le
Sotheby's International Realty - Marina del Rey, CA

Agreed. Wrong data used to calculate is going to give incorrect results. Interestingly and somewhat sad, a property in our MLS was recently recorded as sold for $3 billion. The list price was $3 million. This data entry screwed up all of the data and I was incredibly surprised it was not somehow "caught" by the MLS. I advised them of this error. This was already in one of LA most expensive neighborhoods. Equally important is double checking whether the sales price makes any sense.

Aug 11, 2010 02:47 AM
Thuy Le
Sotheby's International Realty - Marina del Rey, CA

I wish the public would catch on too. And in the back of their mind, - believe the pick and choose when to rely on that data. On a listing appointment, have we ever seen a homeowner pull out a low estimate from the sites? They choose to ignore that unless we tell them their house is valued less than an internet estimate -- then they start quoting figures. As agents, we can use the internet sites to help us. Reviewing the data from Zillow, Trulia, and Redfin before listing appts and also keeping this info in our back pocket is going to help us in helping our clients comprehend their home's market value. Buyers also look at these sites and when working with a Buyer's Agent who might be swayed by their buyer client to drop in an offer that's way off market, we can address the scenario effectively and help that Buyer's Agent inform their clients. In the end, we all want closed deals - and even if the road is bumpier, it can still be immensely rewarding. Totally true regarding home condition. In old and established neighborhoods where home components have had time to go south and have gone through the hands of many owners...the fixtures, apppliances, mechanics, and structural components vary immensely from house to house - thereby affecting valuation so greatly no internet site out there today can make all of those calculations. It makes me so happy to be able to really provide this meaningful service to my clients.

Aug 11, 2010 02:50 AM