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Internet Automated Property Estimates
There are a few companies who are very large in the industry, who like to provide computer estimates of the value of a property. And no I won’t name names. Let me explain how a computer estimate is done.
In the largest company in the field, they take the subject property that they’re looking at and they have an algorithm which is based upon the density of housing in the area. They apply this algorithm which gives them a radius from the property. They then add up the value all of the homes that sold within that radius over the past six months. Let’s say that there are12 homes. They add up the total amount of the sales of those 12 homes and divide by 12. And that is how they come up with their estimate. Sounds pretty simple,yes? Well it’s not quite that simple.
As an example, I looked up the value of a house. The house I looked at was a five-bedroom Colonial with about 3000 square feet on a half acre property with a pool, basement and 2 car garage. That house is actually worth in excess of $500,000. However, within the range of distance from that house is a condo complex. The condos were selling for about $260,000. When you added the value of the single family homes and the condos in there it showed that the property I was checking on was worth $370,000. Conversely, if you check the value of one of the condos the algorythm added the value of the nearby single-family homes. The “estimate” said the condos, which again had a value of around $260,000, were worth around $425,000.
Bottom line – a computer cannot do an accurate valuation. The human touch is required in order to select the comparable properties, and to ignore properties that are not comparable. Even if they are physically close.