Automated property valuations
$140,000 difference
As part of the research for this article, Rachel and Paul, who were preparing to bid for a Sydney house at auction, bought property reports from four websites. They also arranged an independent valuation.
While not an estimate of which websites would be most accurate in a large sample, the exercise did prove that there are risks in relying on a computer-generated valuation.
* The online estimates obtained for the same three-bedroom house differed by over $110,000 — ranging from $548,000 to $662,661.
* The least accurate website was over $140,000 off the eventual sale price.
* Some websites gave ranges so wide that they were of little use: for example, $543,000 to $782,000, or $484,800 to $706,000.
* The licensed valuer was somewhere in between, putting a price of $630,000 on the property. (See the table below for more details.)
With such wide differences, the couple felt they couldn’t rely on the reports, and they weren’t sure which to believe. They eventually used the reports plus information from the selling agent to derive their own valuation.
"Our own estimate was based on previous sales in the area and the price estimation in the Residex report, which seemed the most comprehensive," Rachel says. "We added $25,000 for improvements that had been made since the property’s last sale, so we reckoned its market value was about $621,000. That was pretty close to the licensed valuation report of $630,000."
However, the price the property fetched at auction — $690,000 — exceeded everyone’s expectations. "The unknown factor is what someone else is prepared to pay," says Rachel. "The highest bidder might have been looking for two years and be willing to pay above market value, or might just have loads of money."
Although all the automated reports undervalued the property relative to its sale price, Rachel still thinks some are worthwhile for buyers.
"$50 is a small price to pay to be informed about the market," she says. "But some reports are better than others. The least useful ones were those that gave little information about comparable sales in the area or the property’s historical sale prices. The reports helped up to a point — but they don't take into account things like recent renovations, and the prices are really only a guide."
