The numbers game in real estate values
Realtor Notebook
By Teresa Boardman, Thursday, August 13, 2009.
Flickr image by Untitled blue.Recently, one of my listings did not appraise.
Actually, it never even got an appraisal because the lender decided that it wasn't worth the expense after viewing the results of a computer-generated report. It was a questionable business practice on the lender's part and one that I hope I never see again.
The computer-generated valuation used properties that are two miles from the subject property, and most were foreclosures. The data came from a neighborhood where property values are significantly lower.
The report generated an estimated value that is 146.8 percent less than what the buyers offered. As a result, the lender is not ordering a full appraisal because it has decided that the value of the home is so much lower than what the buyers offered that an appraisal isn't worth the expense.
There is another lender that is willing to take this on, but the buyers won't change lenders. To further complicate matters, the lender referred the buyers to their current agent. The agent has written a few offers for the buyers and none of them have made it to closing.
Needless to say, my sellers are upset. They want a number, a value, so that we have something to work with. Both the buyer and the seller have some flexibility if the home does not appraise for the amount the buyers offered. Both parties know that it has a value far higher than the computer-generated valuation shows.
Instead of dropping off the shiny red sold sign that I just bought, I called my clients with the bad news. I also gave them the good news, which is that I sold their home in 40 days and I am prepared to do it again. There are other avenues, but if it doesn't work out we will have to start over.
The appraisal system seems to be a bit flawed these days, but this is the first time I have encountered a computer-generated report instead of an appraisal. Like most of my peers, I have accepted the fact that some properties will get a lower appraisal than what the buyer is offering. ...CONTINUED
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Submitted by Robert T. Boyer, Ph.D. on August 13, 2009 - 10:51am.
Hi Teresa,
I'm in San Diego and we do contract BPOs and BPOs as part of the REOs that we get. The first thing that I do is to go out to several property evaluation sites and merge the results.
The key ones that I use are:
http://www.FinestExpert.com - because the comps and displayed, including rentals and market trends, and the comps search algorithm limits the search range to 1-mile and like neighborhoods - and by way of disclosure, I am affiliated with FinestExpert.com
Realist - because both active and sales comps are shown
eppraisal - also shows Zillow and cyberhomes results
RealEstate.com - shows a little histogram of the comps - but seems to only be for properties that are already listed
Cyberhomes
HomeGain
Zillow - which unfortunately seems to have a terrible time lag - seemingly giving value estimates that were reasonable 2 years ago.
I just put up a small sample of properties that I did the other day. http://www.SanDiegosFinestRealEstate.com/CompositeAvmSamples.pdf
By creating a composite, you get a sense of the "wisdom of the crowds". It is also easy to see when one information supplier is out-to-lunch. But as you can see, there are times when even these systems don't agree.
Robert T. Boyer, Ph.D.
http://www.SanDiegosFinestRealEstate.com
http://www.FinestExpert.com
Submitted by Benjamin Day on August 13, 2009 - 12:03pm.
When pricing, I start big and land the plan.
I track the trends of the entire marketplace, by price range, style and MLS area with a single monthly report, www.BenjaminDay.com/statpack. After reviewing the macro environment, we move on to the specific property.
I use www.focus1st.com created by a former HP engineer and his wife, a REALTOR with www.TheGroupInc.com in Ft. Collins. It provides a lot of visual data, probability, competing listings, scattergrams and even buyer's purchasing behaviors (seasonal) over the last 24 months. This puts some flesh on the skeleton of data I pull out of the MLS.
In addition to this, I use the Zestimate, the Public Record, building permits (sorry, can't count much value to that deck you added... without a permit) and a spreadsheet out of Excel that shows original list price, final list price, sales price, concessions and days on market. By this point, some of the contradictory information will be readily apparent. But usually, there is a distinct pattern in value that emerges, indicating where the buyers should be lurking.
All of this flies in the face of the computer model database mining for selective information. There are so many things that influence value and perceived value, and I think it is our job as agents to educate the consumer on all the different facets of a sale.
This is a lot of information and my market analysis is known to be three times the size of my peers. But if accurately presented, the extra five to ten minutes it takes can cut months off a listing.
Unfortunately... presenting such a phone book of data to an automated computerized valuator... doesn't overcome that! That's a stinker.
Submitted by Barry Noble on August 13, 2009 - 1:11pm.
You agents are working for your client - and aiming also for a commission fee for a successful transaction.
Ever think - working on a regular basis with a good local appraiser - could bring forth an agreement for reasonable cost listing appraisals for most of your properties - a very small fee to pay up front, when you consider your commission, and when you consider you will then have concrete evidence of the value estimate from THE professional - to both convince the seller and the Buyer of the Current Market Value of the property - and, unless the seller is really not interested in selling or is an idiot, he or she will realize at what value the property must be listed to even garner interest, let alone a sale.
But no, agents try for CMA's and crazy sites that guess (almost always to the wrong value) and then take on listings, knowingly too high with the hope they can be dropped after 30 days - closer to then Current Market, which, in many areas, will be even lower than when it was first listed.
Sorry for the rant - but as a Broker who provides mostly Certified Residential Appraisals for a living, I have little sympathy for agents who complain when their properties, in a declining market, won't appraise for an over-priced listing.
In areas that have a majority of foreclosures, by the way, the foreclosures WILL affect Market Value. It is only the case in markets with minimal numbers of distressed properties, that the distressed sales are NOT used. In todays Market in most areas, post foreclosure sales ARE the true Current Market Value by their sheer numbers.
Barry Noble
State Of California
Licensed Broker and
Certified Residential Appraiser
http://MyPropertyIsWorth.com
Palm Springs, CA
Submitted by Teresa Boardman on August 13, 2009 - 1:37pm.
I have worked with good appraisers but sadly there is only one appraisal that counts and that is the one the bank orders and they can order them from someone who doesn't know the area or who has little experience.
Submitted by Ronald Ogden on August 13, 2009 - 1:42pm.
Establishing the value of a property is an art, not a science, despite the numerous canned CMA programs and "Zestimation" machinations available on the internet.
What is the value of a view from a home on one side of a street that is not available from the home on the other side? What is the value of the remodeled kitchen with the finest finishes compared to the original kitchen in the home next door?
No matter how hard you try, subtleties like these can only be accounted for by personal knowledge of the market, the neighborhood, and the homes being evaluated, with a lot of intuition based on experience thrown in. And that combination of knowledge and intuition is something that cannot be mass produced or automated.
Ron Ogden, Associate Broker
RE/MAX Metro - Salt Lake City, Utah
Salt Lake City Utah Real Estate
Dwell Utah Real Estate Blog
Submitted by Gary Frimann, CRB, CRS, GRI, ABR, ABRM on August 13, 2009 - 2:09pm.
Quick Question. How could it come in at 146.8% LESS. That means it would have lesss than ZERO value? Hate to say it, but even an appraiser would have known how to do that math!
Gary Frimann
Broker / Owner
EAGLE RIDGE REALTY /
SIGNATURE HOMES & ESTATES
http://www.EagleRidgeRealty.net
http://www.SignatureHomesAndEstates.com
Submitted by Christina Henley on August 13, 2009 - 5:34pm.
There are so many examples of these kind of data tools being ridiculously far off it is unbelievable to me that they are still being relied upon. I was speaking to a negotiator the other day and he says "I am looking at $170K" (the REO's are selling between 19-49 in this area) so I laughed and said, " are you looking at Zillow?" you know the answer. I am in Florida and properties are moving quickly but prices are still moving downward. I have to call every single pending and backup sale to obtain a value for listing price recommendations. Do AVM's do that? ;-P
lol
Submitted by Michelle Potter on August 13, 2009 - 6:09pm.
Teresa,
I completely agree that correctly pricing a home takes more time than ever. I now find it imperative to delve into the comparable sold properties and hope like heck there are a lot of photos and virtual or video tours to get an understanding of the interior comparisons. Driving and understanding the nuances in the neighborhood is also an important piece of the puzzle.
With enough lead time, (prior to marketing and entering the listing into MLS), I find it helpful to preview the actives and monitor their status as they hopefully transition into sold homes. This, combined with viewing the multiple comparable data sources, all assist me in coming up with the most accurate price possible. Additionally - this helps me provide accurate data to the appraiser when the time comes. Of course, even with these measures, there are no guarantees…
I also like Barry’s suggestion of doing an up-front appraisal and will use this strategy to determine listing prices on properties more difficult to comp.
Michelle A. Potter
http://www.DenverRelocationBroker.com
http://www.MovedDenver.com
Submitted by Caterina Platt on August 14, 2009 - 1:34pm.
Hi Teresa,
I understand that you are on the selling side and that the buyer's agent will have to be the one with the fire under him/her to set this bank straight. However, as an appraiser who from time to time still wears the 'agent' hat, this AVM story infuriates me. Enough so that I joined Inman simply to read the entire column and comment.
I also understand that the agent is in a precarious position to ruffle feathers at the lender considering the referral, but I also have to stop and ask the buyer's agent, 'Mr. Agent, just who is your client?'
AVMs are notorious for being flawed, particularly in non-homogeneous markets. If there is at all a way to salvage this situation through rebuttal to this lender, I'd be more than happy to help you craft a letter and demand for a Reconsideration of Value. Heck, let's start with a real valuation product to begin with, shall we?
To deny the borrowers a loan on a particular property based on an estimate of value without an acceptable method of valuation seems to be very shaky ground. I'd almost be willing to say your sellers may have recourse for damages?? Not that advocating the 'I'll sue' answer to such a situation, but consider this: When I complete an estimate of value as a certified residential appraiser, I personally stand behind my opinion and report. I am liable for such. Say I have a particularly ornery seller whose deal is dead due to my valuation. That seller indeed has the right to question my report, data, analysis, and complain to the powers that be in my state. Should I be found to be incompetent and have cost him a sale, I could be liable for damages I've caused.
I'd almost balk at terminations and such until the lender could produce a valuation report (preferable a 1004 appraisal by a competent appraiser) that does have an accountable party. Your seller has been damaged.
Submitted by Caterina Platt on August 14, 2009 - 1:37pm.
Forgot to sign my above post. Teresa, if you do wish to contact me, my email address is below. Remove the spaces.
Caterina Platt
Evergreen Appraisals & Realty
evergreen appraisals @ gmail.com