Real Estate Investing For Beginners
March 23, 2022
As a real estate investor, having a concrete understanding of property value is absolutely crucial. This type of information will help you to decide whether refinancing, renovating, or selling the home will be the best course of action to maximize your profitability. In this guide, we take a detailed look at some of the most accurate home value estimator tools currently available.
Best Online Home Value Estimators
Many investors today make use of home value estimator tools to help them puzzle out exactly what their property is worth. Doing so without help can be difficult to do. That’s why we’ve put together this full guide to home value estimator tools online – which ones are most accurate, most trustworthy, and most likely to help the investor to succeed when investing.
Before we talk about the tools, however, we need to talk about what they measure and why. How is the home value determined, and what are these tools taking into account when showing you the home’s value? Let’s start with a closer look at the factors that influence a home value estimate.
What Determines Home Value
Real estate experts will often say that accurate home value estimation is an art, which is why it can be so difficult to determine by yourself. Still, there are certain characteristics a home has that can add to or detract from its overall value, and this is where you need to focus your efforts.
The first is the old real estate classic, location. Where the property is located will have a major impact on the asking price you can set for it. Every street will have its own target market, which will also affect how the price range for the property is structured. As the old adage goes, it’s best to buy the worst house on the best street, and this is why. Having a property in a sought-after location means it’s more likely to sell quickly, and the buyer will be willing to pay a higher price in order to secure a home in close proximity to local amenities.
Next, there is the question of size. The size of the home will also have a determining effect on the value. The bigger the home, the higher the asking price will be. This doesn’t just apply to the interior of the home, but the exterior too. With more people working and living from home than ever before, yard space has become highly valued. Space will, of course, be further affected by the location you buy into and be relative to the norm for that area.
Building on the size of the home, the number of rooms and amenities it offers will have another significant impact on how the property is valued. The number of bedrooms versus bathrooms, and a garage are some of the big-ticket items, but other features like outdoor entertainment options and work-from-home spaces rapidly gaining in popularity. Still, there are some limitations – buyers rarely look for a home with more than four bedrooms.
You’ll also want to pay attention to the flow of the building. Open-plan living has been popular in the past few years, but with more people working and teaching from home, sectioned living is going to be increasingly in-demand.
The last thing that is now playing a growing role in the home-valuing process is technology. The idea of the “smart home” has taken off, and homes that are tech-enabled can capture a higher asking price. This means options like solar heating, eco-friendly grey-water systems, smart lights, and other IoT-based features will score highly with buyers.
All of these different factors will together dictate what the property should be valued at, especially when compared to other similar homes in the same area.
The Problem With The “Old-Fashioned” Way
Calculating the value of your property as a less experienced investor can be a real challenge. Doing so without using additional tools takes years to refine and is an art that many experts still struggle with. Not only is there a high barrier to entry, but doing things the “old-fashioned” way also comes with some drawbacks.
The needs of the market are rapidly changing in the face of the pandemic. Some of the things that add to the value of the home now may not have factored into property values in the past. That’s why working with a home value estimator is a better option today. These tools are made to be constantly evolving, taking new things into account in order to be the latest and greatest on the market.
Still, not all home value estimators are built alike, and you want to take care to choose one that is as accurate as possible and has good reviews from other investors. Let’s take a closer look at the best home value estimators being used right now:
Best Overall: HomeLight's Home Value Estimator
Unlike other home value estimator tools, HomeLight adds a human element and offers real-time data from local real estate agents who can physically view the property, are familiar with listing similar homes, know the neighborhoods, understand what’s trending, and can call out unique characteristics of a property.
Here’s a walkthrough of how the HomeLight Home Value Estimator is able to give accurate results in real time:
- HomeLight prompts homeowners to share details about their home’s qualitative and quantitative features, resulting in a more accurate valuation
- In addition to pulling values with a sophisticated algorithm, HomeLight pings their network of buyer-investors to make a real offer on a house, which gives a crystal-clear idea of current market interest in their specific home
- HomeLight also uses cutting-edge geolocation technology to identify the best comps for every specific house
It is important to note that in order to use HomeLight’s tool, you need to answer a few basic questions about your property. This adds an additional layer of detail which most value predicting tools completely ignore. In so doing, the HomeLight estimator effectively overcomes one of the biggest weaknesses of most other online tools.
All-in-all, HomeLight’s Value Estimator is a solid and reliable resource. It might take slightly longer than some of the other options available, but the built-in questionnaire also increases the accuracy of the prediction. If you have two minutes to spare, it’s definitely worth using.
The All-In-One: Zillow
Since launching in the early 2000s, Zillow has quickly grown to become one of the top home value estimator websites in the US. The website has one of the largest property databases in the country, and as a result, it can provide investors with a range of home-comparing and valuing tools.
Commonly known as their Zestimating tool, Zillow allows you to enter a home address and see how much comparable properties sold for in the same area, changes to that value logged in the last 30 days, and predictions of how the property value will change over the next year. Because data on Zillow is updated daily, there is a relatively small margin for errors when it comes to on-the-market homes.
As for off-the-market homes, there is a higher margin for error on Zillow. This is because Zillow makes use of publicly available data, of which there will be more if the property has been formally listed as “for sale”.
The Most Detailed: Ownerly
Ownerly is another excellent home value estimator, but the features of this premium tool don’t end there. In addition to providing accurate home valuations based on the same automated models that banks use, you also get access to important neighborhood data drawn from the house that you are researching. This includes access to comps, and other valuable real estate analytics that can help you make an investment decision.
In addition to a sophisticated home value estimator, Ownerly also provides data on:
- Mortgage rates for refinancing
- Typical renovations for comparable properties
- Homeowners insurance policies and average premiums
All-in-all, Ownerly is a very solid choice if you need accurate pricing data. The only drawback is that it is premium software, meaning you have to pay in order to access all the best features.
The On-The-Go: Trulia
Now part of the bigger Zillow brand, Trulia has been named one of the best options for investors looking to use a mobile app. Unlike other real estate-based mobile applications, Trulia has gained a reputation for being user-friendly while still offering all the great features provided by Zillow.
This means that using your smartphone, you can easily identify home price trends, comparable home values, and much more. On the other hand, you won’t get a definitive estimate directly through the Trulia app. Still, being able to view comparable prices and trends in a flash is useful if you’re evaluating properties while on the go.
Trulia can also prove useful if you’re planning to do more research about a neighborhood. Using the app you can check out their neighborhood map to determine where the nearest schools are, review tips from locals, and even view the neighborhood through a virtual tour. This can be hugely helpful to determine how valuable the location of a property is.
The Most Accurate Home Value Estimator: Redfin
Redfin has put forward one of the most accurate home value estimators on the market right now. Powered by the real estate brokerage, the Redfin estimate provides data on home prices and estimates more accurately than other options out there due to how it handles data updating.
Redfin updates its website and app data every 5 minutes using data gained from MLS databases and other publicly available sources. Quick access to MLS data gives them a lower margin of error on home valuations, making it even more accurate than the Zillow estimate. Like other home valuation tools, Redfin uses the property address to offer an estimate of the current market value, and further estimates as to what the property will be worth in the next five years.
Ultimately, it is Redfin’s direct access to MLS data combined with excellent predictive capabilities that make it arguably the best online home value estimator.
Free & Easy To Use Online Valuation Tool: FlipScout
FlipScout may be one of the newer additions to the list of home value estimators, but its unique features cannot be underestimated.
Made by the loan company New Silver, FlipScout was built specifically to find undervalued or pre-foreclosure flip properties. This free tool makes use of publicly available data and other intelligence options to help investors locate distressed homes with high potential for house flipping.
The company has recently also launched FlipScout for Rent, allowing buy-and-hold investors to find rental properties with the potential to make a good ROI. The FlipScout portal allows you to calculate rehab costs, see the estimated rental income, and much more for properties around the country.
Another great feature of FlipScout is its email alert system. If you can’t find a property suitable to your specifications, you can set up search parameters that will notify you by email when the right one is listed.
With their easy funding option available directly in the search portal, you can secure funding for an opportunity in a flash and ensure you can close the deal quickly.
The Realtor Preference: Realtor.com
Mainly used by real estate agents across the country, Realtor.com has a built-in home value estimator tool that draws from the information commonly given to realtors themselves through limited-access property databases.
Forming part of the National Association of Realtors, Realtor.com has an estimator tool linked to the “My Home” section of the website. Consisting mainly of MLS properties, estimations are updated every fifteen minutes.
What makes this tool a little different from the others on the list is how each home value estimate is determined. Realtor.com provides three different estimates sourced from varied real estate or financial institutions, estimates for the upcoming month, and other data like neighborhood trends and prices. This gives you a closer idea of how different features will be valued.
Another useful feature allows you to review the estimated value increase per upgraded room if you were considering doing some renovations prior to selling.
The Bottom Line
Home value estimator tools are a reliable and current way to determine the fair market value of your investment property. The tools listed in this article cover a variety of niches within the real estate sector and can help you make better investment decisions.
At the same time, it’s useful to know what factors these tools take into consideration when providing a home value estimate. Many of these factors will always be influential in setting asking prices, such as the location and size of the property.
On the other hand, some of these factors have only become prominent in the past few years. It pays to stay ahead of the trends, and you should not shy away from using more than one of the tools above when evaluating a property.
Are recent sales factored into the best home value estimator tools?
In a word, YES. Comparable sales form the backbone of any automated valuation model. Moreover, even when a real estate agent completes a home valuation manually, they will always use comparable sales in order to complete a comparative market analysis.
Ultimately, recently sold homes offer the most accurate indication of fair market value. This is how real estate professionals, real estate agents, realtors and professional appraisers calculate the homes market value.
Zillow home value estimates are often considered the most accurate; however, this depends on the location and available data. Known as 'Zestimates,' they have a national median error rate of 7.5 percent for off-market homes and 1.9 percent for listed homes.How can I estimate the value of property? ›
- Use online valuation tools. Searching “how much is my house worth?” online reveals dozens of home value estimators. ...
- Get a comparative market analysis. ...
- Use the FHFA House Price Index Calculator. ...
- Hire a professional appraiser.
Redfin's home value estimator is more accurate than Zillow's when it comes to pinpointing the sales price. According to Redfin, its estimates are approximately 74% accurate within 5% of the sales price for listed homes. By comparison, Zillow is only 67% accurate within 5% of the sale price for listed homes.Is Zillow Zestimate accurate? ›
How accurate is the Zestimate? The nationwide median error rate for the Zestimate for on-market homes is 2.4%, while the Zestimate for off-market homes has a median error rate of 7.49%. The Zestimate's accuracy depends on the availability of data in a home's area.Which valuation method is best? ›
Discounted Cash Flow Analysis (DCF)
In this respect, DCF is the most theoretically correct of all of the valuation methods because it is the most precise.
The three most common investment valuation techniques are: DCF analysis, comparable company analysis and precedent transactions.What are the 4 ways to value a property? ›
- 1 1. Sales Comparison Approach.
- 2 2. The capital asset pricing model.
- 3 3. Location specific advantages.
- 4 4. Income Approach.
- Sales Comparison Method. Also known as the market data approach, this method helps valuers analyse the current market rate of properties of a particular region to create a valuation report. ...
- Profit Method. ...
- Cost Method. ...
- Residual Method. ...
- Contractors Method. ...
- Investment Method.
Is Realtor.com or Zillow more Accurate? This is another frequently asked question from home sellers and buyers. The main difference between Realtor.com home values and Zillow Zestimates is that Zillow uses its own program to create a Zestimate, while Realtor.com uses several 3rd parties to provide multiple home values.Why are Zillow estimates so high? ›
Factors That Affect Zestimate Accuracy
The tax assessor database also might have a mistake related to a property's basic information, causing the assessed value to be too high or too low. Homeowners who see discrepancies can report incorrect sales data or tax records to Zillow online.
The Redfin Estimate is highly accurate, with a current median error rate of just 2.20% for homes that are for sale, and 7.21% for off market homes. This means that when a home that is currently on the market sells, the Redfin Estimate will be within 2.20% of the sales price half of the time.How close is zestimate to actual value? ›
Share: Zillow's Zestimate has been found to have a nationwide error rate of 1.9 percent for on-market homes. When it comes to estimating home values for off-market housing, the error rate jumps to 6.9 percent. Overall, Zestimate accuracy is between 95% and 96%, so it's pretty accurate in most cases.Is realtor com or Zillow more accurate? ›
Realtor.com is arguably the most accurate real estate listing platform today. It is affiliated with over 580 regularly updated MLS databases across the U.S. Realtor.com also operates in more regions than Zillow and Redfin simply because it's been around for longer, that is since 1996.How do I get my Zillow zestimate higher? ›
- Claim your property. Your home's “Zestimate” is Zillow's best guess on market value. ...
- Make sure the square footage is correct. ...
- Consider for sale by owner. ...
- Add 3D home, download Zillow 3D home app and add a virtual tour. ...
- Email Zillow at this super-secret address.
The most popular of the property valuation methods is the sales comparison approach. Also known as the market data or comparable sales approach, this method is mostly used for land and residential real estate, especially single-family homes.Which valuation method is most commonly used for residential property? ›
Direct comparison approach
This is the most commonly known valuation approach. We analyze recent sales of comparable properties to determine the value of your property.
The cost approach can be used to appraise all types of improved property. It is the most reliable approach for valuing unique properties. The cost approach provides a value indication that is the sum of the estimated land value, plus the depreciated cost of the building and other improvements.What are the three appraisal methods used in a valuation? ›
- Sales comparison. This is the most common method, where appraisers value a property based on the recent selling prices of similar properties in the same neighborhood. ...
- Cost approach. ...
- Income approach.
The past transaction method looks at past transactions of similar companies to determine an appropriate value. There's also the asset-based valuation method, which adds up all the company's asset values, assuming they were sold at fair market value, to get the intrinsic value.What decreases property value the most? ›
- Deferred or neglected maintenance. ...
- Home improvements done wrong or not built to code. ...
- Outdated kitchens and bathrooms. ...
- Shoddy workmanship. ...
- Bad or ugly landscaping. ...
- Frail or damaged roof. ...
- Noise pollution. ...
- Registered sex offenders in the area.
The Appraisal Institute defines highest and best use as “the reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible and that results in the highest value.” Appraisers typically apply four tests to determine that use.What increases property value? ›
The top five projects that add the most dollar value to a sale in 2022 are refinishing hardwood floors, installing new wood floors, upgrading insulation, converting a basement to a living area and renovating closets, according to a joint report by the National Association of Realtors (NAR) and the National Association ...What is the simple valuation formula? ›
The formula is quite simple: business value equals assets minus liabilities. Your business assets include anything that has value that can be converted to cash, like real estate, equipment or inventory.Is MLS better than Zillow? ›
If you are able to view the MLS in your area online directly, you will only see properties that are currently active on the market. This makes the MLS more accurate than Zillow, which frequently keeps properties listed as available long after they have been taken off the market.Is Zillow or Redfin better? ›
Both companies are reputable and offer consistent quality. The “best” choice depends on what services you need. If you're thinking of selling your house as a FSBO, Zillow is the clear choice, since Redfin doesn't take FSBOs. If you're looking for lower prices, Redfin wins out.Do people use Redfin or Zillow? ›
Zillow is the most popular home buying website because it's available throughout the U.S. and includes lots of details on off market properties, while the Redfin app only displays listings in select markets. However, better options exist if you're looking for a low cost realtor or want to earn a home buyer rebate.Do appraisers look at Zestimate? ›
“Come take a look at this incredible value, under-priced a hundred thousand below assessed value.” The assumption the agent would have you believe is that the assessed value is the market value. Sorry, guys, it isn't! House appraisers also do not look at the Zillow value of your home either!Why does Zillow underestimate home values? ›
If your home has more value-factors (bigger square footage, better condition, more amenities, etc) than the comparables that are pulled, then your Zestimate is likely to be lower than actual value.When appraisal comes in lower than offer? ›
If the purchase agreement contains an appraisal contingency, the buyer is protected in the case of a low appraisal. If the buyer can't get the seller to adjust the price or come up with the difference in cash, they can walk away from the sale with their earnest money deposit returned to them.Why is my home value so low on Redfin? ›
What Can Cause Errors in a Redfin or Zillow Home Value Estimate? A common reason for inaccurate estimates is outdated information. For example, if you have made major additions or renovations that don't show up in the data that Redfin or Zillow have collected on your home, then their estimates may be too low.
The Zestimate is often less accurate than your Realtor's estimate and can be thousands of dollars off. According to Zillow's Zestimate page, “The nationwide median error rate for the Zestimate for on-market homes is 1.9%, while the Zestimate for off-market homes has a median error rate of 7.5%.Why is there such a price difference between Zillow and Redfin? ›
Zillow has higher real estate commissions.
This is a consistent practice among Realtors, with 3 percent designated for the listing broker and 3 percent going to the buyer's agent. Because Redfin is a brokerage as well as a listings aggregator, commissions can be as low as 1 percent of the selling price.
Bidding wars. In competitive housing markets where there are multiple bids on a home, buyer demand can push the price beyond what an appraiser determines it's worth. Appraisers work off historical data and their appraisal must be based on recent sales of comparable homes in your area.Can Realtors manipulate zestimate? ›
How do realtors manipulate Zillow? These Zestimates use a proprietary system for their calculations which is being widely manipulated by listing agents and homeowners to exaggerate the value of the majority of homes on Zillow.Can realtors hide zestimate? ›
'” Zillow's estimate of a residential property's “fair market value” which the lawsuit states they know “to be inaccurate,” have allowed “only select brokers to conceal the display of Zestimates on their listings to the exclusion of the general public.”Which home selling site is most accurate? ›
Realtor.com is affiliated with the National Association of Realtors and uses MLS listings which are sourced from around 580 regional databases and considered the gold standard for quality listings.6 For this reason, Realtor.com is our pick for most accurate real estate website.How do banks determine home value? ›
To calculate appraised value, a licensed appraiser considers the location, size and condition of your home, and any renovations you've completed. The appraised value is what mortgage lenders look at when a borrower buys a home or refinances their mortgage.How accurate is realtor home value? ›
The fact that major online calculators may be working from incomplete data means that home value estimates may be off. But it isn't by much. Redfin strives to deliver estimates that are within 3% or less of a home's selling price. Zillow even goes as far as to list their median error for top housing markets.Does Zillow offer zestimate? ›
What's a Zestimate? A Zestimate valuation is a proprietary Zillow tool for getting a free, instant estimate of a home's market value.What do I do if my Zillow zestimate is wrong? ›
If you're unsatisfied with your Zillow Zestimate, you unfortunately won't be able to directly change it. But you can influence your Zestimate by updating information about your home, fixing incorrect information, and adding rich details to make sure your home's profile is complete.
The Redfin Estimate is highly accurate, with a current median error rate of just 2.18% for homes that are for sale, and 7.03% for off market homes. This means that when a home that is currently on the market sells, the Redfin Estimate will be within 2.18% of the sales price half of the time.Is zestimate the most accurate? ›
The Zestimate is often less accurate than your Realtor's estimate and can be thousands of dollars off. According to Zillow's Zestimate page, “The nationwide median error rate for the Zestimate for on-market homes is 1.9%, while the Zestimate for off-market homes has a median error rate of 7.5%.What is the most accurate house price index? ›
The FHFA HPI serves as a timely, accurate indicator of house price trends at various geographic levels. Because of the breadth of the sample, it provides more information than is available in other house price indexes.Why is Zillow zestimate so low? ›
If your home has more value-factors (bigger square footage, better condition, more amenities, etc) than the comparables that are pulled, then your Zestimate is likely to be lower than actual value.Do appraisers use zestimate? ›
Appraisers don't use Zillow or other online evaluation technology for just this reason. Most of the online engines can only give you an average of data in an area and unless there are a lot of sales of the same type of homes, their estimates can be sharply incorrect.What is the Zillow scandal? ›
By spring of 2021, the market had overheated to a point where Zillow's much-lauded algorithm, the backbone of its home-flipping strategy, was struggling to make accurate pricing predictions. Believing its own inflated numbers, say analysts, the company began overpaying for homes all across the country.Is Redfin or Zillow better? ›
Both companies are reputable and offer consistent quality. The “best” choice depends on what services you need. If you're thinking of selling your house as a FSBO, Zillow is the clear choice, since Redfin doesn't take FSBOs. If you're looking for lower prices, Redfin wins out.Which algorithm is used for predicting house prices? ›
Regression algorithms, on the other hand, predict the continuous value i.e. the expected price of a house; the number of votes that a party is likely to get in general elections, the number of marks a student is expected to score etc.What is the most used Price Index? ›
The Consumer Price Index (CPI), collected and published by the U.S. Bureau of Labor Statistics (BLS), measures price levels for a basket of consumer goods and services. The CPI is the most publicized and widely used measure of consumer price inflation in the U.S. economy.What are the two most common price indexes? ›
- The consumer price index, or CPI. Put out by the Bureau of Labor Statistics, this measures the average change over time in the prices that urban consumers pay for a market basket of goods and services.
- The price index for personal consumption expenditures, or PCE.