Online house price calculators vs estate agents

“I don’t need you to tell me how much my house is worth – I can just as easily look online and I’ll find out in 10 seconds”

“You’re asking too much for this property – I checked what they paid for it online and the website said it was worth XXX”

Both familiar comments as far as I’m concerned so I thought it was about time to do a bit of analysis into the accuracy of online house price estimates and any differences between these and an actual estate agents valuation.

To make things simple, I have used my own house for calculation purposes

  • Last sale – £236,500 in November 2010
  • Zoopla says my house is now worth £271,052 with a further value range stated of £259,679 – £282,425. This is apparently based on value changes within my postcode (BS39)
  • HM Land Registry – £272,322 based on BANES data
  • Nationwide says £271,206 based on South West regional data
  • Lloyds Banking Group say £262,633 based on South West regional data

So, despite certain differences in the parameters each site uses, there isn’t really much variation in the eventual figures – my house is apparently now worth about 260 – 270k.

However, to illustrate one serious flaw in the online valuation process – when we bought our present home it was a real mess after years of neglect and (excluding decoration/flooring, garden landscaping and other subjective improvements) we have also done the following;

  • New 8ft x 20ft steel reinforced front retaining wall to garden & driveway
  • Rebuilding front steps and new gates
  • New porch and kitchen extension
  • New kitchen fittings
  • New fittings to bathroom & ensuite shower room
  • Damp proofing

Now I’ve done all this work to make the house right for the family – not to make money – but the property is unrecognizable inside and out from when we bought it and yet the online calculators have no idea what has changed.

This lack of context is one of the biggest issues in using robot driven calculation methods and so much could have changed to the property, the local area or the local market that it is impossible for any algorithm to keep up. If you add extra bedrooms (for example a loft conversion) or if a new housing estate gets built in the next door field, the computers simply have no idea.

Now my street is a fairly typical village back road with a normal mix of housing and my house is about middle of the range for size so average postcode values won’t be too distorted. However, this is by no means true in many areas and this causes other issues with online price calculators. In areas like our home patch of Bath, you can have tiny studio flats right next to five storey Georgian houses or the price on one road can be an entirely different price to another 50yds away.

For example, we all know the Royal Crescent;

Royal Crescent

But 100 yards from the back door of the Royal Crescent Hotel, you’ll find this;

Phoenix House

This is Phoenix House on Julian Road.

Zoopla tells us the average asking price in the area covering both locations is £436,810. However, the last one bed flat in Phoenix House sold in January 2015 for £163,200 whereas a one bed flat in the Royal Crescent sold in the same month for £440,000.

Martin Lewis’s conclusion sums it up best;

“Take the results with a pinch of salt. Never rely on the figures given – treat it as a fun investigation, rather than anything more.”

So, how do estate agents “valuations” differ from online estimates?

Estate agents mainly use the first of the following three methods to estimate value but may also use the others when appropriate;

  • The “Comparable Sales Method” or “Inferred Analysis” focuses on market data of sales of similar property in a recent time period and thus gives an estimate of which price is adequate for a certain kind of property. Sales comparisons can easily be performed using in house records from the estate agent & internet databases of property transactions. The advantage of this method is that it reflects the actual market prices, but it neglects the aspect whether a property investment is profitable for seller and buyer, or not.
  • The “Income Approach”concentrates on the profitability of a property investment. It analyses the present worth of projected future net income and anticipated future resale value. This method gives a good appraisal of whether a certain property is worth its price to the buyer, but it neglects the relation to the overall market.
  • The “Cost Approach”lies somewhere between the two previous methods and is not actually an autonomous method of value analysis. It estimates property value by adding the cost of the land to the replacement cost of the building minus depreciation, thus coming up with a figure of how much the property should be worth. But it neglects far too many factors to be a useful method of valuation.

Or, to show the approach from a different angle, estate agents take these factors and many others into account;

Estate agents valuations