Instant Home Buying Offers: How Do They Work?
If you’re familiar with Zillow, Honest Door, Properly, or any of the other popular real estate iBuyers, you’ll have heard of algorithms being used to estimate home value. But are these algorithms accurate? Understanding their strengths and weaknesses can help you decide if these services are likely to give you an estimate that accurately reflects the value of your home.
The speed and convenience of instant online offers make it easy to see how they save you time. The use of algorithms, or sequences of computer operations, have made these immediate offers possible by estimating your home’s worth based on the historical sale prices of houses with similar features. These calculations are fast due to automation, but lack the ability to consider your home’s full potential. When you’re navigating such an important, expensive transaction however, saving time might not be your only priority; sometimes saving time can cost you money in the long run.
Let’s put it this way: algorithms are great for assessing quantitative data like the number of bedrooms, bathrooms, and square footage of your home. However, they can struggle to produce an offer that accurately represents your home’s qualitative features—maybe you have a stunning view uncharacteristic to the neighbourhood, or an open layout that makes your smaller home feel substantially larger.
Algorithms are also limited to historical data on home sales, and lack a wider view of external factors that can influence home prices such as interest rates, upcoming changes to government policies, or trends in the housing market and greater economy. These are all factors better assessed by humans with hands-on experience, like Realtors® and other licensed real estate professionals.
In addition, algorithms are limited by the types of houses that have been sold in the past. Estimates can be very inaccurate when a home is very different from the other houses in the neighbourhood. For example, an algorithm may give poor estimates of the value of a newer infill house with more square footage, bedrooms, and bathrooms than the other houses in the neighbourhood simply because the algorithm hasn’t seen anything like it before.
So take these instant online offers with a grain of salt. Consider getting the opinion of a real estate professional who can provide a more accurate picture of the value of your home, taking into account qualitative characteristics and external factors that algorithms can’t.
Automated estimates can serve as extra information to help guide the process of selling your home, but by no means should they have the final word. After all, selling a home is the largest financial transaction most people will ever make. Wouldn’t you want the most accurate estimates you can get?