How house prices are estimated

There are three common ways to put a number on a UK home: an estate agent’s valuation, a surveyor’s valuation, and an automated online estimate. They use overlapping evidence but serve different purposes, which is why they rarely agree to the pound. Knowing how each one is made helps you decide how much weight to give it.

The three kinds of valuation

Estate agent valuations

When you’re thinking of selling, an agent will visit, look round, and suggest a price to market the home at. This is sometimes called a market appraisal. It’s free because the agent wants your instruction.

A good agent bases the figure on recent sales nearby, homes currently for sale that you’ll be competing with, and what they’ve seen buyers pay for similar properties. They can see condition, layout and light, which no database can.

The weakness is the incentive. An agent who quotes high is more likely to win the instruction, and a home priced too high can sit on the market and end up selling for less than it would have at a realistic price. Getting two or three agent valuations, and asking each one which sold prices support their figure, is the simplest protection.

Surveyor valuations

A valuation by a RICS-registered valuer is a formal opinion of market value, made to professional standards and backed by insurance. Mortgage lenders commission one before they lend, and you’ll need one for things like divorce settlements, probate or shared ownership staircasing.

A mortgage valuation is done for the lender, not for you. It’s often a short visit, sometimes no visit at all for lower-risk loans, and it answers one question: is the property good security for this loan? It isn’t a survey of condition. If you’re buying, a RICS Home Survey at Level 2 or Level 3 tells you far more about the building itself.

Automated estimates

Online tools, including ours, use an automated valuation model, usually shortened to AVM. An AVM is a statistical model trained on homes that have already sold. You give it an address and a few details, and it predicts a likely sale price from patterns in that history.

Lenders use AVMs too. For some remortgages and lower loan-to-value purchases, an automated valuation replaces the surveyor’s visit altogether. That tells you something: in the right conditions, they’re accurate enough for a bank to rely on.

What actually drives the price of a home

Every method is trying to capture the same handful of factors.

• Location. The single biggest driver. Two identical houses a mile apart can differ by tens of thousands of pounds because of schools, transport, and how sought-after the street is.
• Size. Measured properly by internal floor area, not bedrooms. A three-bed with a large through-lounge can be worth more than a cramped four-bed.
• Property type. Detached homes usually sell for more than semis, semis more than terraces, and houses more than flats, all else being equal.
• Condition and specification. Kitchens, bathrooms, heating, windows and general upkeep. Buyers pay for homes they can move straight into.
• Tenure. Freehold or leasehold, and for leasehold the length of the remaining lease and the ground rent and service charges. Short leases, generally under about 80 years, can reduce value sharply and make a mortgage harder to get.
• Outside space and parking. A garden, a garage or off-street parking can matter as much as an extra bedroom in some areas.
• The market at the time. Mortgage rates, local supply and buyer confidence move prices across whole areas at once.

How an automated estimate is built

An AVM starts with sold prices. In England and Wales the main source is HM Land Registry’s Price Paid Data, which records the price, date, postcode and property type of residential sales going back to 1995. Scotland and Northern Ireland publish their own records.

A sold price alone doesn’t say how big a home was, so models add other data. Energy Performance Certificates are the most useful, because they record floor area and the number of habitable rooms for most homes sold or let since 2008. Some models also use planning records, listing data, and features such as distance to stations.

The model then does roughly what a good agent does in their head:

1. Find recent sales of similar homes close to yours.
2. Adjust each sale for how the market has moved since it happened.
3. Adjust for differences in size, type and features between those homes and yours.
4. Weigh the closest, most similar and most recent sales most heavily.
5. Produce a central figure and a range that reflects how consistent the evidence is.

That last step is easy to overlook. If ten similar homes on your street sold within a few thousand pounds of each other last year, the range will be tight. If your home is unusual, or nothing like it has sold nearby in years, the range will be wide, and you should treat the central figure with more caution.

Why online estimates disagree

If you check three websites you’ll often get three different numbers. That’s normal, and it usually comes down to:

• Different data. Some models know your floor area from an EPC; others only know your postcode and property type.
• Different timing. Sold prices can take a couple of months or more to appear in public records. Models fill that gap differently.
• Different assumptions. Each model weights location, size and recency in its own way.
• Errors in the records. A home that’s been extended since its last EPC looks smaller to a model than it really is.

The right response isn’t to pick the highest figure. Look at the ranges, and look at the comparable sales each site shows you. If one site’s comparables are much closer to your home than another’s, trust that one more.

What no estimate can see

An automated estimate has never been inside your home. It can’t see a new kitchen, a loft conversion that isn’t on record yet, damp, a cracked wall, a noisy neighbour or a lovely view. It doesn’t know if your flat has a 70-year lease or a £4,000 service charge.

That’s why our estimates come with comparable sales: so you can check whether the homes the figure is based on are really like yours. If your home has had significant work done, expect its value to sit towards the top of the range or above it. If it needs work, expect the opposite.

How to use an estimate well

An online estimate is a good starting point and a useful check, not a final answer.

• Before you call agents, use it to get a feel for the right ballpark, so you can spot a valuation that’s been inflated to win your business.
• When buying, compare the asking price with the estimate and the comparables. An asking price well above both is worth questioning.
• When remortgaging, it gives you a rough idea of your loan-to-value, which affects the rates you’ll be offered.
• For anything legal or financial, get a proper valuation from a RICS-registered valuer.

Read our guide to understanding comparable sales to get more out of the evidence behind any estimate.