Outdated and Inaccurate: The Problem with Traditional Home Valuation Methods
Revolutionizing the Home Valuation Process with Property Intelligence
Purchasing or selling a house is like attending an elaborate symphony: complex and intricate, with several instruments playing in perfect harmony. Just as each part of the orchestra carries its unique sound that adds to the whole picture, so do all stages of home buying and selling – appraisals, comparisons between properties on offer, and loan funding - come together for a triumphant conclusion at closing time.
The Home Valuation Process is Antiquated and Inefficient
Access to reliable, accurate data about the property is paramount to a smooth real estate transaction. This is especially true when it comes to home valuation tools. A very common tool is an appraisal and the process has not changed much in the last few decades. The appraiser evaluates various factors such as the location, size, condition, and features of the property and will visit the property to visually inspect the interior and exterior, taking note of any recent renovations, upgrades, or other improvements. In addition to the appraisal visit, the appraiser will research comparable properties sold in the area, looking for homes of similar size, location, and condition to determine the final property value. Increasingly, an appraiser may not visit a property in-person and could rely solely on public-records like tax data to determine the value of the home. While an in-person appraisal takes time and can be highly subjective, remote appraisals are so data-reliant that they could miss critical information.
How Accurate Are Home Valuation Techniques Really
If an appraised home value is questionable, it is easy to assume incompetence among the appraisers or some sort of fraudulent activity. In the vast majority of cases, this is an unfair assumption but it highlights an important point - appraisals are opinions and subject to bias. There is also the risk of errors in data input or transmission, or data may be missing altogether. That said, there is an acceptable variance when it comes to home appraisals and it is generally related to market conditions. The accuracy of an appraisal is determined by the data that is used to make the assessment. Remote appraisals rely heavily on past sales, geographical factors, and other industry metrics. In-person appraisers are more likely to look further into the factors influencing home values such as upgrades or neighborhood amenities. Unfortunately, market volatility makes establishing these benchmarks tricky and all appraisal methods could reference incorrect property details, outdated information, or be subject to data entry errors.
More commonly, data modeling is used to estimate the value of a property on a near real-time basis. These automated valuation models include a combination of public, MLS, and user-submitted data plugged into a proprietary algorithm that varies based on the provider. According to Zillow, who owns the ZestimateⓇ home valuation model, 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. Some areas have more detailed home information available — such as square footage and number of bedrooms or bathrooms — and others do not. The more data available, the more accurate the Zestimate value will be1. Regardless of whether a home valuation is an in-person appraisal or an algorithm, the more data, the better.
Home Valuation Matters, Even When You Aren’t Buying a Home
There are many different reasons why getting your home appraised can be a wise financial decision even when you have no immediate plans to sell your property. Firstly, you may be considering refinancing your home, and an appraisal can help you determine the current market value of your property to determine whether refinancing is a profitable choice or not. Secondly, if you're considering renting out your home, an appraisal can help you to establish a competitive rental value that can maximize your rental income while attracting high-quality tenants. Thirdly, an appraisal can be useful for estate planning purposes. In the case of a property being transferred to children or other heirs, an accurate appraisal can help establish a fair value for the property, and it can be used to minimize potential estate taxes. Finally, some homeowners choose to get regular appraisals to keep an eye on the value of their property over time. This can help homeowners keep track of their overall net worth and make informed decisions for their future financial plans.
More Detailed, More Accurate Property Data Means Better Valuations
Reality capture is not a new part of the home appraisal process but access to more accurate, more detailed data from these 3D models is where Matterport Property Intelligence is poised to revolutionize the home valuation process. Once a property has been scanned, Matterport can use the resulting digital twin to determine measurements and room types, and detect a variety of common objects, appliances, and fixtures. Scanning is possible via a variety of devices, from a smartphone with the Matterport Capture App to the Pro3 lidar 3D camera. No matter the devices you choose to create your scan, these comprehensive, high-quality data insights can be used to increase the accuracy of automated valuation models and empower valuation teams with rich data filtering options to better compare properties. Plus, this enriched data set can be integrated with third-party data systems to provide more insightful property comparisons than what is currently available. With this type of data, now it is possible to get deeper insights into the market and increase the understanding of the value drivers for different property types.
Matterport leads the real estate industry in data quality and accuracy, surpassing that of tax records or any other database. The average home transaction that uses Matterport has an average of fifty scans or the equivalent of several hundred photos plus comprehensive measurement data. This amount of data, coupled with our Cortex AI engine, positions Matterport Property Intelligence to deliver more accurate automated valuations and provide unprecedented transparency into property value drivers.
Offering Property Intelligence as part of our industry-leading digital twin platform marks a significant milestone in the industry and is a capability only Matterport can provide. We’re currently piloting Property Intelligence with select customers and expect to reach general availability in the second half of 2023. Customers who are interested in learning more can contact us at [email protected].
