An online home value estimate can give you a useful starting point, but it is not the same thing as a mortgage appraisal.
What websites sometimes call an “online home appraisal” is usually an automated valuation model, or AVM. It uses property data, comparable sales and mathematical models to estimate a home’s value without a traditional appraisal inspection.
That estimate can be close to the eventual appraised value, or it can be significantly different. The more unusual the property or limited the local sales data, the more carefully you should treat the number.
Key Takeaways
- An online home value estimate is usually an AVM, not a lender-ordered appraisal.
- Property data and comparable sales are two of the biggest things to check when evaluating an online estimate.
- A low mortgage appraisal can affect financing, but buyers may have options depending on the loan and purchase contract.
How Accurate Is an Online Home Appraisal?
There is no single accuracy level that applies to every online home value estimate.
An AVM may perform well when a property is similar to many recently sold homes nearby and the underlying public and listing data are accurate. It can have more difficulty with unique homes, rapidly changing markets, limited sales activity or properties whose important characteristics are not captured correctly in the available data.
That is why an online estimate is best treated as one data point rather than a guarantee of what a home will appraise for.
If you want to understand the technology itself, Movoto’s guide to how automated home value estimates work explains what AVMs use and why estimates from different websites can disagree.
Online Home Estimate vs. Mortgage Appraisal
An online estimate and an appraisal are both attempts to determine property value, but they are produced differently and can be used for different purposes.
| Valuation | Who or what produces it | What it uses | Typical purpose |
|---|---|---|---|
| Online estimate or AVM | Automated model | Property data, sales records and market data | Early value estimate |
| Appraisal | Licensed or certified appraiser when required | Property characteristics, comparable sales, market data and the applicable appraisal process | Mortgage and other valuation needs |
| Comparative market analysis | Real estate professional | Comparable listings and sales plus local market knowledge | Helping estimate a listing or offer price |
The Consumer Financial Protection Bureau notes that mortgage lenders can receive different forms of valuation, including a full appraisal and an AVM. Different valuations can produce different results because they may use different comparable sales, data or valuation dates.
1. Compare the Online Estimate With the Mortgage Appraisal
The most definitive comparison comes once the lender’s valuation is complete.
If your mortgage requires an appraisal, the appraiser develops an independent opinion of value using the property and relevant market evidence. That does not mean every appraisal requires the same type of physical inspection, since the valuation method can depend on the loan and transaction.
If the appraisal and online estimate are close, the AVM may have captured the property and market reasonably well.
If they are far apart, that does not automatically mean either number is wrong. Look at the information and comparable sales supporting each valuation before deciding which appears more representative.
2. Check the Property Information Behind the Estimate
An automated estimate is only as useful as the data available to the model.
Check basic property information such as:
- Living area
- Number of bedrooms and bathrooms
- Lot size
- Property type
- Year built
- Recent sales history
- Major additions or permitted changes
If an estimate believes a 2,400-square-foot house contains 1,900 square feet, for example, the valuation may not reflect the actual property.
Online databases also may not fully capture renovations, condition, view, layout or other characteristics that buyers in the local market value.
3. Make Sure the Estimate Reflects the Local Market
Home values are highly local.
Two properties with similar square footage and features can have very different values because of neighborhood, school district, lot characteristics, access, surrounding development and local supply and demand.
An estimate is more useful when the model has enough recent information from homes genuinely comparable to the one you’re evaluating.
This becomes especially important in rural areas, neighborhoods with few recent transactions or areas where one street can differ substantially from another.
4. Look at the Comparable Sales
Comparable sales, often called comps, are one of the most important checks on any home value.
A recent sale next door is not necessarily a good comparable if the house is substantially larger, newer, renovated differently or sits on a different type of lot.
Useful comps generally should be reasonably similar in characteristics and location and recent enough to reflect the current market.
You can also compare the number with Movoto’s explanation of assessed value versus market value. The tax assessment, estimated market value and eventual appraised value can all be different numbers because they are created for different purposes.
5. Ask What the Local Market Supports
A real estate agent can provide another perspective through recent sales and current local market conditions.
That does not make an agent’s opinion the same as an appraisal. But if an online estimate appears unusually high or low, a local comparative market analysis can help identify why.
For example, the automated estimate may be using sales from a nearby neighborhood that buyers treat differently, or it may not account well for the property’s condition.
The goal is not to find whichever number you like best. It is to understand why the different estimates disagree.
Common Home Appraisal Mistakes to Avoid
Movoto previously covered appraisal mistakes in a separate article. The most useful points belong here because they all come back to understanding what the valuation actually tells you.
Treating an Online Estimate as a Mortgage Appraisal
An AVM can be useful for research, but do not assume the lender’s appraisal will produce the same number.
Assuming the Purchase Price Determines the Value
An accepted offer shows what a buyer and seller agreed to pay. The appraiser still has to develop a supportable opinion of value based on the property and market evidence.
Ignoring Incorrect Property Information
Review the information being used. Incorrect square footage, property type or other factual details can distort a valuation.
Using Weak Comparable Sales
The closest sale is not always the best comp. Similarity, timing and market area all matter.
Confusing an Appraisal With a Home Inspection
An appraisal and inspection have different purposes. A home inspection is primarily intended to help the buyer understand the property’s physical condition, while an appraisal addresses value and applicable lending requirements.
Movoto’s home inspection checklist explains what buyers should look for during that separate part of the process.
Challenging an Appraisal Without Evidence
If you believe an appraisal contains a factual error or missed relevant market information, work through your lender’s process rather than simply arguing that the number should be higher.
Useful supporting information can include factual corrections or more relevant comparable sales.
What Does a Mortgage Appraisal Involve?
An appraisal is an independent opinion of a property’s value. The appraiser analyzes the property and market information and typically compares the home with relevant recent sales.
The exact appraisal format varies. Some transactions may involve a traditional appraisal with a physical property inspection, while others may use different valuation methods when permitted by the lender and loan program.
There also is no single national appraisal price. Cost can vary based on the property, location, complexity and type of valuation required.
If the lender charges you for an appraisal or another valuation, the cost generally appears with the other mortgage costs. CFPB notes that borrowers are also entitled to receive copies of appraisals and other written valuations obtained for many first-lien mortgage applications.
What Happens If the Appraisal Comes In Low?
A low appraisal means the appraised value is below the price you agreed to pay.
That can create an appraisal gap and affect the amount a lender is willing to finance under the planned loan structure.
Depending on the circumstances, possible responses can include:
- Renegotiating the purchase price
- Bringing additional cash
- Splitting the difference with the seller
- Asking the lender about a reconsideration of value when there is supporting evidence
- Changing the financing structure when possible
- Canceling or renegotiating if the purchase contract gives you that option
Your options depend heavily on the contract. An appraisal or financing contingency can affect what happens when the property’s value does not support the original deal.
Can You Trust an Online Home Appraisal?
You can use an online estimate as a starting point, particularly when the property has plenty of recent comparable sales and accurate public data.
You should not treat it as a promise of the property’s value or assume it will match a lender’s appraisal.
The best approach is to check the property’s underlying information, look at recent comparable sales, consider local market conditions and understand why different valuation methods may produce different results.
Bottom Line
An online home value estimate can help you understand the general range a property may fall into, but it is not necessarily the value your lender will ultimately use.
Check the property facts, local market and comparable sales before relying heavily on the number. If the lender’s appraisal comes in differently, review the report and determine what the difference means for your mortgage and purchase contract.
FAQ
Is an online home appraisal the same as an appraisal?
Usually not. Most online home value estimates are produced by automated valuation models using property and market data. A mortgage appraisal is an independent opinion of value completed under the appraisal process required for the transaction.
Why is an online home value estimate different from an appraisal?
The two valuations may use different data, comparable sales, timing and methods. An automated estimate also may not capture property condition or unique features as effectively as a more detailed valuation.
Does a mortgage lender use online home value estimates?
Lenders can use AVMs and other valuation methods in some circumstances. A consumer-facing website estimate, however, should not be assumed to be the valuation your lender will use for the mortgage.
What if an online estimate is much higher than the appraisal?
Review the property information and comparable sales supporting both numbers. If the appraisal appears to contain factual errors or overlooks relevant market evidence, ask your lender about its process for requesting a review or reconsideration of value.
Does an appraisal replace a home inspection?
No. An appraisal primarily addresses property value and applicable mortgage requirements. A home inspection is intended to give the buyer more information about the physical condition of the property.
What happens if a home appraises for less than the purchase price?
The buyer and seller may renegotiate, the buyer may bring additional cash, the parties may split the difference or the transaction may change or end depending on the mortgage and purchase contract.
