The question popped up on a local Yahoo Group - "How do I figure out what my home is worth?"  A neighbor suggested starting with Zillow, along with talking to a local real estate agent (yay, she mentioned me by name! Thanks, Jen!)

Zillow is an okay place to start and a very cool website. Unfortunately, it does draw heavily on tax records. Where Zillow started out on the West Coast, they have very data-rich tax records. Ours are pitiful for the lack of valuable information – ours give the number of above-grade bathrooms, but no mention of bedrooms at all. Square footage is key in the tax records, but over the years square footage has been determined by a variety of methods with varying degrees of accuracy. Also, many tax records have not been updated to reflect additions and upgrades. So I usually find Zillow to be fairly inaccurate in general. Sometimes it is right on the money, but the kicker is trying to figure out if your property is fitting one of the “accurate” times or not. Check out Zillow's own explanation of their accuracy. For instance, Zillow says 49% of home sales in Prince George's County are within 10% of the "Zestimate" price.

The other problem with online valuation websites is that these sites cannot give value to intangibles. For example, take two houses on the same block with the same floor plan. One has a wonderful backyard that backs up to woods. The other backs up to the parking lot of an apartment complex. No online valuation site can take this into consideration because the value of each is in the eye of the buyer.  The aesthetics of a property are very to value yet they can make tens of thousands of dollars difference in value.

Then let’s think about value. There is a common misconception that every house has a fair market value that can be determined at any time. The truth is that a house has a fair market value only at the moment that it sells.  This is because, of the four components to market value, the seller/owner only controls one of them. Fair market value is 1) the price a buyer is willing to pay that 2) a seller is willing to accept, 3) in a given market on 4) a given day. Right now, I can’t tell you what price a buyer might offer, what the interest rates and general market conditions will be on the day the buyer makes that offer, or even what day that offer will come in. The only thing we have an inkling of is what price a seller is willing to accept and even that is subject to change based on items 1, 3 and 4.

In a stable market, it is fairly easy to come close to estimating fair market value. In a volatile market like the one we’re in right now, it’s very difficult. Our market place is being overly influenced by the preponderance of foreclosures and short sales. A seller’s asking price may be very competitive one day, but too high the next – and all it takes is for the competition to drop its price and suddenly you’re the highest priced home on the market. So price is always relative to what else is going on in the market on any given day.

This all seems very squishy when you just want to know what the value of your house is – I know. Now let’s add to the mix the reason you want to know the market value. It seems like the reason shouldn’t matter – value is value is value, right? Nope! There’s Fair Market Value, Tax Assessed Value, Valuation for Estate purposes. The value of a house when you sell it to your child is not considered Fair Market Value – it’s not an Arm’s Length transaction because it’s being sold to family. A house sold at auction is not Fair Market Value – it’s a distress sale and is discounted to reflect that fact.

We agents are almost as clueless as everyone else in a highly volatile market. Our guesses are just more educated than most. Even an appraiser will make a determination based on what else has sold in the neighborhood and guess what? It only takes one more sold property to completely upset that applecart.

Hope some of this helps! If anyone wants more specific help for a specific property, I’m always happy to stop by and discuss what’s happening in the market. Those who know me know I love talking about real estate!

You can find me on: Twitter - http://www.twitter.com/susanpruden.com and Facebook - Susan Pruden (C) 2009 Susan Pruden.