Are we overestimating the value of home estimates?
Home estimates seem to be all the rage - and they can be polarizing!
The most popular real estate websites, including Zillow, Realtor, and Redfin all provide estimates of a home’s price. When we launched Bluebid Homes, we knew we too wanted to provide estimates that would allow our buyers and sellers to get a good sense of a home’s price in today’s market.
Like the websites mentioned above, Bluebid Homes estimates are derived from a complex algorithm that takes into account vast amounts of data. Still, estimates of what a home will transact for are imperfect. There are two primary reasons for this. First, the data sets available are incomplete and/or imperfect and they don’t take into account all of a home’s unique features and characteristics. Undoubtedly, AI and its vast capabilities and learnings will dramatically improve estimates in the near term. Second, estimates, and all the data behind them, are backward looking (and sometimes lagging by thirty plus days) and the real estate market is forward looking. While Bluebid Homes has strong confidence that AI will improve backwards looking estimates, we have less confidence that AI can solve for forward looking pricing - at least for now!
But sometimes we have to take a step back and look at how useful estimates are. Is it really important? At the end of the day, a home is only worth what a buyer is willing to pay for it.
You need a willing seller and a willing buyer - absolute rocket science, we know!
The vast majority of homebuyers and sellers are not trading in and out of the real estate market. Sellers sell and buyers buy because of a change in life circumstances – their family is growing and they need more space (or the opposite for baby boomers these days), they changed jobs and need to relocate closer to their place of work (less of a factor now), or they recently retired and want to relocate to a less expensive state with a warmer climate. You don’t often hear of folks attempting to time the market – i.e. selling into a hot market, renting, and then buying back into the same product in the same market. Never mind the headache and the transaction costs, it’s a risky proposition because you could find yourself priced out of the market entirely if home prices continue to run, and the future interest rate on your mortgage is unpredictable as we are all now acutely aware.
In the existing marketplace, when you list your home you go on the clock. Days on the Market starts and most brokers would tell you that it’s in your best interest to transact within 60 days. After that, you are at the mercy of a market. Stale listings are difficult to move because buyers are instinctively wary and assume something is wrong with the home. This may not be the case, but in the residential real estate market perception is reality. The best way to kill any potential real estate deal is with pricing that doesn’t meet the market’s expectations, which then leads to a stale listing. In the past you could refresh a stale listing and maybe get away with it – those days are gone.
Today’s market is an especially tricky one. Interest rates have more than doubled from their lows, yet prices remain stable (at least in Massachusetts). Many attribute this to a lack of inventory – the demand still far exceeds the supply despite the increase in rates (and the resulting decrease in qualified buyers at many mid to higher price points) and many people choosing to sit things out because they think a weakening economy may lead to a decrease in prices. Many would be sellers are reluctant to list because they don’t know if the buyer will be there at yesterday’s pricing. Was your neighbor’s house that sold last month the last one on your street to achieve a new pricing record? The days of 3 bids $30,000 over asking are over and are unlikely to return. Homes are sitting out there longer and a big piece of bad economic news could hurt the market in the near term. All in all, it’s a vulnerable time to be a seller despite the pricing that some sellers continue to achieve.
That's the beauty of Bluebid Homes and a big part of why we build our company
Bluebid Homes is a real estate technology platform that connects homebuyers and homeowners directly, so both parties can privately explore off-market deals. By claiming your home on Bluebid Homes, owners take control and wait for a deal that works for them. The private and direct communication allows you to obtain the information you need to evaluate what the market has to say right now and how that fits into your process. You don’t have the pressure to transact, and we think this ultimately allows you to make a better decision for you and your family. Today, less than 1% of homes are for sale in Massachusetts. At Bluebid Homes, we think, at the right price and on the right terms, there are a lot more sellers out there, and that there are plenty of buyers willing to meet sellers' expectations.