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Home prices have been rising so fast that comps have become wildly unreliable. That\\u2019s making it difficult for sellers to set accurate listing prices, and for buyers to get homes appraised for what lenders are willing to loan. Home valuation tools like Zillow\\u2019s Zestimate and others are also struggling with a volatile pricing environment, and are often off by an insanely high amount.

In a report by Inman, realtor Tim Collom in Sacramento, California, said that estimated home values by companies like Zillow and Redfin are \\u201calways\\u201d off, and it\\u2019s getting worse. He says: \\u201cThey\\u2019re not off by $10,000. They\\u2019re off by like $100,000 to $200,000.\\u201d If you go by percentages, he says they can off by as much as 10%, and that even experienced real estate agents are having a difficult time keeping up with the trends in home prices right now.

Tools like the Zestimate are automatic valuation models or AVMs so they rely on software to automatically update figures. There\\u2019s been a lot of criticism about these tools, but Zillow defends its algorithm which it says is constantly updated by a team of data scientists. Owners can also input upgrades which may impact the value.

In a statement to Inman, Zillow claims the Zestimate is \\u201cincredibly accurate with a mean error rate of 1.9 percent for on-market homes and 7.3 percent for off-market homes.\\u201d

Zillow also acknowledges that valuations are more difficult right now because of fast-moving prices. The real estate website says that Zestimates are not appraisals. They are only a starting point for buyers and sellers and suggests working with a local real estate agent to fine tune that figure.

Big Sky, Montana, real estate agent, Michael Pitcairn says the Zestimate has been more than 10% lower than the MLS home value data used by his brokerage. According to Inman, Zillow says Big Sky\\u2019s home price appreciation is rising 21% year-over-year. Pitcairn\\u2019s MLS tool says it\\u2019s more like 35%. That\\u2019s also very close to what Realtor.com is estimating, at 34.6%.

But it isn\\u2019t just the AVMs that are causing trouble for home valuations. Many real estate professionals say that comps aren\\u2019t much help either, especially if there are no very recent sales. That\\u2019s making it hard for listing agents as well as appraisers.

Missouri appraiser, Mason Spurgeon, says: \\u201cIt\\u2019s a crazy time right now.\\u201d He says that appraisers don\\u2019t predict the future. It\\u2019s not their job. They look backward in time. They analyze what has already happened in service to the lender.

That can also result in a big gap between the appraised value and the agreed upon sale price which is making it impossible for some buyers to follow through on a deal. If they are relying on a loan and they only have a certain amount of money for a down payment, they won\'t be able to cover that gap. Sometimes, buyers can provide comps to prove that an appraisal is low, but again, the comps are not keeping up with the price appreciation.

Inman offers a few work-arounds for agents, and basically anyone doing their own legwork on home values.

1 - Expand the geographic area to analyze how the market has been performing. And, look for similar markets just outside that area to find data on pricing.

2 - Expand the square footage of the home to include more comps within a wider range. Or, remove the square footage altogether to get a look at what\\u2019s sold and for how much.

3 - Ask agents in the area about how many offers they are getting, how high the offers are going, and pending sale amounts. Some agents may be willing to share that information.

4 - Participate in local online discussion groups where everyone is sharing information.

The take-away -- You have to be more proactive in coming up with a valuation that works within the market, and works best for you.

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Links:

1 - https://www.inman.com/2021/04/26/inman-handbook-on-comps-in-these-chaotic-times/

2 - https://www.inman.com/2021/04/27/zestimates-cant-keep-up-with-wild-housing-market-agents-say/