What's the Best Way to Determine Your Home's Value?

Many homeowners believe that they have the strongest insight into the value of their home; after all, only they understand all of the blood, sweat, and tears (and money) that have been put into countless maintenance and improvement projects over the years! Other people are certain that computer-generated automated valuation models (AVMs), with their access to millions of data points from the overall market, comparable properties, and buyer tendencies, can give estimates that no human can match. So which side is actually better at valuing a home, the owner or the AVM? As it turns out, there isn't really much of a difference between the two options, partially because neither is very good at the job!

This conclusion comes from a recent study by the Federal Reserve, whose economists compared owner and AVM home valuations in 2014 to actual sales data. After adjusting for things such as market price increases and sale timing, the authors found that the competing valuations were fairly similar in accuracy, with about 40% of owner valuations and half of AVM valuations falling within 10% above or below the actual sale price.

Each valuation source has strengths and weaknesses which prevent it from being more accurate. For instance, while homeowners are keenly aware of difficult-to-quantify factors such as style and upkeep, they generally lack insight into overall market trends. Additionally, homeowners do have inherent bias in their valuation, which equaled a 2% average over-valuing of their home. Conversely, AVMs are both completely objective and filled with excellent data on market trends, but can't account for things like design and cleanliness.

So how can an owner get the most accurate valuation for their home? The results of this study would seem to imply that a real estate professional is the way to go! This makes perfect sense when you consider how an agent determines a home's value. First, they can physically walk through your home, making note of all of its intangibles; then, they can combine their observations with their personal insight into the market conditions specific to your local area! In this way, the agent can take the best aspects of both the owner and the computer and combine them into the right number for your situation.