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

The interesting thing about property valuation is that it is done using a kind of fuzzy logic that a computer cannot yet replicate. Skilled and experienced real estate agents and appraisers look at three comparable properties in the immediate area that have sold recently.

Knowledge of the area is critical and the computer software just doesn’t get it. Comparable properties are homes in the same neighborhood and condition as the subject property.

As an agent, I find pricing more challenging than ever. I am currently working on pricing a new listing. I will spend hours looking at comparables and will present my clients with a recommendation backed up with data.

They will be able to understand the logic of my recommendation, and like most of my sellers they will take my advice or they will have to find another agent. There isn’t any point in listing a home that won’t sell or one that will get an offer but won’t appraise.

I wish there was a computer program that I could use that would generate an accurate property valuation. The property I am writing about is valued at $177,000 by the county tax assessor and is listed for $219,000.

The same property is valued at $280,500, according to Zillow’s Zestimate, and the automated report that the lender used shows a value of $85,000. The valuations are so disparate that it is hard to believe they are valuations for the same property.

Teresa Boardman is a broker in St. Paul, Minn., and founder of the St. Paul Real Estate blog.


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