Surprised by Your Zestimate®? Can You Trust Its Accuracy?
The answer for Santa Fe is not necessarily…
In the ever-evolving world of real estate, accurate property valuation is crucial for both buyers and sellers. Two of the most popular tools for estimating home values are Zillow's Zestimate® and Realtor.com’s RealEstimate℠. We’re not here to cast aspersions on these valuable tools because they can work well for certain markets and properties and will give you a very quick “ballpark” estimate for the property you are interested in selling or buying. But how accurate are these estimates, and can you rely on them when making important real estate decisions in the Santa Fe market? Let's dive into the details.
What are these home value estimates?
These estimates are the estimated market value for a home, calculated using a proprietary algorithm. These algorithms consider various factors, including:
Public data (tax records, prior sales)
User-submitted data
Comparable home sales
Geographic and market trends
In many markets and locations, these estimates are quite accurate. However, in the Santa Fe area, accuracy can vary widely due to several factors:
Prior Sales Data: In New Mexico, a key data point is missing because the price that comparable properties sold for is not provided to the real estate websites.
Location: In areas with a high volume of recent sales and well-documented data, the estimates tend to be more accurate. Large planned communities in big urban areas like Dallas or neighborhoods in dense urban centers like San Francisco provide a wealth of data to improve the accuracy of the estimates. However, this does not reflect the reality of most locations in Santa Fe. Some neighborhoods may not have a home sell for several years. Small, quirky neighborhoods that may be close together geographically can be far apart from a price perspective. Other areas are sparsely populated so provide little comparable data.
Data Quality: Homes with detailed and up-to-date information in public records and the real estate websites’ databases have more accurate estimates. If a home’s characteristics are inaccurately listed or outdated, the estimates won’t be accurate. Santa Fe has a lot of homes that have been added on to and improved over many years and this may not be accurately reflected in the public records.
Market Conditions: In rapidly changing markets, estimates can lag behind actual sale prices. The current market in Santa Fe is changing rapidly with homes in some neighborhoods and lower price points still seeing multiple offers with the sold price point above asking price, while homes in other neighborhoods and higher price points are selling below the original asking price. It’s simply not possible for the estimates to keep pace with these nuances.
Unique Properties: Custom-built homes, luxury properties, and homes with unique features often have less accurate estimates. This describes most of the homes in many areas of Santa Fe.
Real-world examples
To illustrate the variability in accuracy, consider these scenarios:
Missing Prior Sales Data: In New Mexico, the “sold price” of prior sales is not provided to the real estate websites so they have to rely on listing prices. So, a common scenario in Santa Fe is if a house in a specific neighborhood sells significantly higher or lower than its listing price, estimates for comparable properties in that neighborhood will not be accurate.
Urban vs. Rural: A standard three-bedroom home in a densely populated city like Houston might have an estimate very close to its market value, often within 2-3%. Conversely, a similar home in a sparsely populated area of Santa Fe could be off by 10% or more due to fewer comparable sales.
Market Fluctuations: In a hot market where home prices are rising rapidly, estimates may be lower than actual sale prices. For example, in 2021, many homes in Santa Fe areas saw sale prices exceed their estimates by 5-10% as people moved out of urban centers due to the pandemic.
Unique Features: A historic home in Santa Fe’s Historic Eastside with original architectural features may have an estimate that doesn’t fully account for its unique appeal, leading to a valuation that is lower than what buyers are willing to pay.
Conclusion
Online home value estimates are a valuable tool in the real estate market, offering a quick and accessible way to roughly gauge home values. However, their accuracy can vary significantly based on location, data quality, market conditions, and the uniqueness of the property. The bottom line is that if you only rely on the accuracy of these estimates when pricing a property, you could be off by thousands of dollars and you should always consult a real estate professional for a final estimate.
I have a deep understanding of these limitations and can supplement these estimates with professional advice and up-to-date local market insights to help both buyers and sellers make more informed decisions. Don’t hesitate to contact me today for a free estimate!