Homeowners are Becoming More Accurate at Predicting Home Value

We’ve been reporting on the discrepancy between what homeowners believe their home is worth and actual market value for several years. During that time the trend of homeowners overestimating their home’s value held steady, as it had been doing for years. According to a June 2020 article published in the Journal of Housing Economics, “… in most scholars’ opinion, dwelling owners tend to overvalue their properties by about 5%.” Recently though, we’re seeing an interesting deviation from the tendency of homeowners to be overly optimistic about potential sales prices – to now underestimating the market value of their home by an average of 0.77% – a difference determined by comparing homeowner opinions with appraiser estimates.

A Shift in Homeowner Perception

Recent research based on the National Quicken Loans Home Price Perception Index (HPPI) and illustrated on the graph below from Rocket Homes found that homeowner estimates of home value shifted from somewhat higher than appraisals to below appraiser estimates in 2020. Interestingly, the graph clearly reveals that the shift coincided with the onset of the Coronavirus pandemic.

Percentages varied little across the country, with homeowner expectations 0.9% lower than appraisals in the West, 0.8% lower in the South, 0.92% lower in the Northeast and 1.01% lower in the Midwest.

The narrowing gap between homeowner estimates and appraisal value points to the stability of the housing market. In times of rapid market deceleration or acceleration, homeowners are typically slow to adjust their expectations and significantly over- or under-estimate their home’s appreciation. The fact that homeowners across the country are predicting their home’s value with relative accuracy reveals that the market is in a balanced state.

From Listing Price to Actual Market Value

When a homeowner is ready to sell their home, they may use an online home value estimator or make an educated guess based on the price they paid for the home and how long they have lived there. Then they will find a local real estate agent who will perform a comparative market analysis that considers comparable homes in the area that have sold in the past 90 days. Using this information, the agent and seller will agree on a list price. The homeowner may choose to go with or against the recommendation of their Realtor, but regardless this number is an estimated value and does not reflect the home’s true market value. Once an offer is placed on the home, an appraiser will assess the home and take current market trends into account to provide an appraisal of the home that is as accurate as possible for the mortgage lender, yet not considered its true price. The true market value of the home is ultimately determined by the purchase price agreed upon between the buyer and seller once the sale is finalized.

The Benefits of an Accurate Estimate

The fact that homeowner estimates are becoming more aligned with appraised value translates to a smoother process for both sellers and buyers. When expectations for a final sales price are closer to reality, it helps both parties to avoid surprises during the home appraisal that might cause a sale to fall through.

A Trusted Real Estate Agent is Your Greatest Ally

When making the decision to sell your home, the most important decision you will make is to seek the assistance of a qualified real estate agent. The job of an experienced Realtor is to work on your behalf, which includes helping you to list your home for an ideal price. A reliable agent will recommend a price that will help you sell your home in a timely manner and for a desirable profit while avoiding the pitfalls of pricing too high or too low for the current market. Our experienced team (20+ years) of top 1% buyer’s and seller’s agents are experts on the Portland metro area, yet we charge a lower-than-average commission rate and will provide you with a comprehensive market analysis with no obligation to list. Chat with the bot on this site or give us a call at 503-714-1111 today!