Web sites such as Trulia, Zillow, and SmartZip offer estimates on what a house is worth, or how much the house would sell for if it was on the market. It is not unusual that the estimated value varies wildly on these three sites, along with it not matching the asking price. The Chicago Tribune recently did an article on the math that is behind these estimates, and how to interpret the numbers.

The sites use something called an automated valuation model or AVM, which takes into account recent sales, property history, size and number of rooms, market trends and other miscellaneous factors, to determine a value. The data model casts too wide of a net over a geographic region to be able to determine highly accurate values. The estimates are useful for detecting pricing trends within a specific neighborhood, if prices are rising or falling.

Are the home value estimates useful in buying or selling a house? The answer lies in the way the estimates are used. To figure out the high and low price range of houses in a particular neighborhood, the estimates can be helpful. If used to figure out the specific value of a house, not so much. The AVM’s are unable to know the internal condition of a specific house. The current homeowner may have redone a kitchen, or remodeled the basement, raising the value of the home. An appraisal is still needed to judge the true value of a home.

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