You may think you know the value of your home. You could be wrong

There’s a good chance you could be completely wrong about the value of your home, and that has serious implications for your personal finances, according to a new study.

People often overestimate or underestimate the value of their homes, according to a new study by researchers at the Federal Reserve Bank of Boston. At the low end, 5% of homeowners underestimate the value of their homes by $87,500, while another 5% overvalue them by at least $53,000 compared to actual transaction prices, Stefano Corradin, José L. Vilatte, and Carles Vergara Alert found in their paper.

According to the report, online databases like Zillow or professional appraisals often miss the mark on the actual transaction price of a property. Zillow says its estimates are discrepant by 5% or more, or 16% of cases. This is an improvement from 2018, when researchers reported that more than 50% were down by 5% or more.

When this inaccuracy occurs, it can have a profound impact on your financial decision-making process. The researchers found that people who overestimate the value of their homes tend to feel richer and spend more.

They also invest less in risky stocks and more in low-return, risk-free assets. People who overestimated the value of their homes by $60,000 reduced their risky holdings by 1.1% to 1.9% and increased their consumer spending by 1.5% to 4.3% compared to homeowners whose assessments were correct.

The fact that many of us are so far removed from determining the value of our homes has implications for the broader economy as well.

“Given the widespread use of home equity as collateral, the results imply that misvaluation of home values ​​can have significant implications for credit availability and macroeconomic stability,” the researchers wrote.