Plenty of sellers have utilized automated home valuation tools online only to be shocked or surprised at the home value it estimates for them. While sellers are typically pleased when the values appear higher than they expected, many online instant valuations come in far lower.

Estimating a home's market value is far from an exact science. These tools attempt to provide greater transparency in home prices to homebuyers and sellers by using data derived from public records, which contain past sale information and yearly real estate taxes. Many even have satellite views so accurate they can spot your cat laying on the front porch.

How do they do it? Home valuation sites contract with major title companies to obtain county tax roll data. All property is registered with the county for property taxing purposes. They also find ways to become members of local multiple listing services, which are either subsidiaries of real estate associations or owned by local real estate brokers. That way, they have access to listing data.

Using this tax roll data and listing data, home valuation sites apply their own algorithm to come up with an instant estimate of value for what a home could be worth. Zillow has dubbed their version of this automated valuation a "Zestimate". They disclose on their site that depending on where the home is located, their Zestimate could be off by as much as 40%.

The quality of the data available means that sometimes the results are spot on, but they can also be terribly inaccurate. And algorithms can't make adjustments to reflect whether or not a home has been updated, how well it's maintained, or esoteric values such as curb appeal and views.

For that reason, online valuations should be used only as one of many tools to estimate a home's value.

Ask your real estate professional for a comparative market analysis, or CMA. He or she can show you the most recent listings and sold comparables, accurate to within hours or a few days at most.

- Courtesy of Cloud CMA