Inside Market Value

All about the market value of property. From CMA's to assessments...to appraisals...to web based tools.
There are 11 articles written on this subject. The most recent 10 are listed here:

2006 Remodeling Cost vs. Value Report Market value becoming a tough nut to crack ABC Values™ Previews on the Web All About Property Market Values What's All the BuZZ I Hear?

Conformity. What is it and why does it matter? Preparing to Sell: Part I Everyone feeling the pain and an industry gone wacko! Being upside down causes a rush of blood to the head Zillow sharpens its sword...challenges the status quo

You will find a complete Index of Articles by Category and by Month in the Archives.

May 3, 2007

Conformity is an interesting concept and one that I have not seen talked about in the Blog world. Here's the basic definition as provided in "the Language of Real Estate" by John W Reilly:

Conformity

1. An appraisal principle of value based on the concept that the more a property or its components are in harmony with the surrounding properties or components, the greater the contributory value.

2. The concept that maximum value is realized when the four agents of production (labor, capital, management and land) are in economic balance.

We see this principle in action everywhere. That's what "planned" communities are all about and what justifies the existence of home owner associations (HOA's). Almost every new development is planned to be in harmony within its confines supplemented with community amenities such as common areas, parks, recreation facilities and, often times, compatible retail centers.

So, the question is: What happens when an economic event, such as the building of a non-conforming home within a community that is otherwise in balance? I found the following article a couple of months ago on the Inman News Website that pinpoints the answer. Here is an excerpt:

Future neighborhood construction may hurt resale value
Factors that could scare off buyers
Monday, February 12, 2007

By Dian Hymer
Inman News

It doesn't take much to throw a buyer off track. Prospective sellers should keep this in mind as they prepare their home for sale. It's easy to concentrate on making your home look good but overlook other factors that could impede the sale.

Fear of the unknown will send buyers running in the opposite direction. For example, you may take pride in the fact that your home is located next to a vacant lot. There's no building adjacent to yours to obstruct the view or the quality of light.

From a buyer's perspective, the feature you relish might be a serious drawback. What if someone builds a monstrosity next door that blocks the light and diminishes the view? Many buyers will pass on a house like this and keep looking, particularly if there are many other homes on the market. Buyers who aren't dissuaded might require a price concession to compensate for the expected loss of value once the house next door is built. (emphasis added)

As a buyer, it is important that you and your agent perform due diligence to ascertain what future plans may be and what the local rules are controlling development and how strictly they are followed. As an agent I have two perfect examples of when good intentions may have negative economic impact:

• Builder constructs custom home home for his own family. A community in a local area has large lots (greater than an acre), no HOA and no restrictions on building other than county requirements. Builder buys a 2 to 3 acre lot with some woods, builds a beautiful custom, three level home with about 6,500 square feet of finished space. The problem: the neighborhood is what I call very "eclectic." The surrounding homes range from 20 to 30 year old ranch style homes, log homes, to colonials and everything in between (including run down shacks).
  
  Now the subject of selling this home: In a planned community, It would probably list at greater than $1,000,000. Since it was in a "non-conforming" neighborhood, It was listed in the high $800,000's and eventually sold after 9 months in the high $600,000's. Reference the Inman article above: it took a considerable price concession to attract the right buyer. This situation was brought back into "economic balance." There was a price at which a buyer overlooked the non-conforming nature of the area and focused on the bargain to be attained. This may not have been bad for the builder in this case because he minimized development costs by building it himself. Did he maximize value? Maybe, maybe not. Depends on his original objectives and motives.
• Conforming neighborhood with an undeveloped private lot. This neighborhood consists of colonials on 1 to 1 1/2 acre lots with surrounding open space, views of the local hillsides and abundant wildlife. The existing homes in a subsection of the development (not completely built out) range from about 3,000 square feet on two levels to the largest at a bit over 5,000 square feet on two levels. The homes in this subsection were built in the mid 1990's and incorporate architectural style of the area and building designs of the time. A range of home sizes but, conforming nonetheless.
  
  The empty lot, purchased from the original developer as an investment, was sold to a private, boutique, custom home builder. The builder proceeds to construct an 11,000 square foot home (on three levels) of an architectural style that does not fit the neighborhood. Blatantly non-conforming. Homes in this neighborhood sell for $600,000 to slightly over $1,000,000. The new home is listed at over $2,000,000. What's wrong with this picture?
  
  It makes absolutely no logical or economic sense. The builder in this case has every legal right to build what the county will allow. But, the consequences, perhaps unintended, could be devastating on the community. Does a $2M home in a neighborhood of homes with values averaging less than a million bring up the value of the whole. I think not. In fact, it may have the opposite effect. Could the HOA representing this neighborhood have a say in what could have been built on this lot? It could. Unfortunately, the HOA is not yet controlled by the homeowners. It is still controlled by the original developer. Somehow the county should have had a say besides zoning and building code. The original developer of the community should have had a say as they controlled the HOA and this had to pass "architectural review." The builder of this home needed to look at his plans, look around the immediate neighborhood and come to the responsible conclusion that his plan was economically "out of balance." No wonder builders have such a poor reputation in general. I suspect that economic balance will be achieved and somebody is going to be financially disadvantaged.

In the first case of a non-conforming area, the individual builder is totally responsible for his own decisions and the financial consequences.

The real question in the second case is: Should there be and can there be strict oversight and control of building in planned, conforming neighborhoods? In my mind, there should be better controls because the actions of one has a potential economic impact on many. I'm not sure it can be (or could be in this case) because ordinary citizens were not involved nor had responsibility to review the actions that impact their living environment. Counties and towns go to great lengths to protect the character of its "historic districts" and rely on significant oversight of proposed expansion and redevelopment within those areas. The same principle should be applied to planned, conforming developments as well. Maybe this is just a one off case that got out of hand because of the circumstance. So be it. The bottom line, as I see it, is no one used any common sense in allowing this to happen and the individual was not exercising any social awareness or consideration of his actions on others. I am not an advocate of legislating to protect an individual from making poor choices. I would advocate protecting the many from the impact of individuals making poor choices.

There are cases where very old neighborhoods go through redevelopment because the land value far exceeds the improved value of existing homes. In these cases, redevelopment can have a positive economic impact on existing owners. The theory here is highest and best use. More about this in a future article.

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April 9, 2007

A recent article I published Preparing To Sell in the Spring Surge was about a strategic mindset as a seller (you know ... the 5 Bs). This article is about the tactical side of preparing to sell.

In my experience over the last couple of years, I've met few homes that didn't need some work before going on the market. I'd say conservatively 7 out of 10. The biggest problem with sellers is that they don't look at their home through a buyers eye. This one simple fact will prohibit a home for selling at its highest and best value, or worse, not at all.

Just a couple of years ago when the market was red hot, a seller could put a dog house on a 10 square foot lot on the market and it would attract multiple contracts in a matter of hours. Not so today. Buyers simply have too much to chose from. If your home is not in tip-top shape, ready for a buyer move in, you simply will not sell. Unless, of course, you make it a bargain. Even then, many buyers just don't want the headache of having to do spruce up work themselves. Here's what I see in many homes we examine before taking a listing:

• Dirt: Plain and simple, a dirty home is going to turn off buyers. Professional cleaning top to bottom is a low cost investment that returns many times over its cost. For a medium range home the cost could be several hundred dollars.
• Worn, stained carpets: Turn off number two. Occasionally professionally cleaning them will help but, cleaning won't change the wear factor. I recommend replacing all carpet with a medium grade, neutral color with the best pad money can buy. About $23 to $25 per square yard will be sufficient. We've done this many times on medium priced homes and it makes a world of difference. On a higher end home, a more expensive solution is in order to match the higher price range.

• Paint: This ranges from hideous color combinations to just looking worn out. This is true for both inside and out. A freshly painted home not only looks good but could get rid of many years worth of living smells at the same time. Again, neutral colors are best. Don't forget the ceilings. And, hire a professional. Very few of us will do a quality job if we try to skimp and do it ourselves. Don't forget to fix the wood rot outside too. If it doesn't look well maintained all kinds of red flags go up in a buyers mind leading to: "What other problems might there be that can't be seen?"
• Smells: Cooking, smoking and animal smells will cause a potential buyer to turn around at the front door and run away as fast as they can. In fact, I take a buyer client out of a smelly home before we even make it across the threshold. For gawds sake, don't smoke in the house (especially after replacing carpet and painting). Got dog hair floating everywhere? Gotta fix it (as in get rid of the hair and don't let it come back). Nothing, absolutely nothing, is worse than cat urine. It will destroy a home, not only carpets but wood floors as well; even the sub-flooring. There are several neutralizing agents available that may mitigate this issue but, I have found none are 100% effective. If it gets into the sub-floor, ouch! If it can't be totally mitigated you have just narrowed your buyer population to a minuscule number and your price must be adjusted significantly downward to compensate.
• Clutter: Any of us that have been in our homes for more than just a few years have more stuff laying and hanging around than we probably need or use. That neat warming tray gift from Aunt Grace is a keepsake but never used. Buyers want to imagine how they will live in your home. Your stuff falling out of the closets and kitchen cabinets that have not 1 square inch of space left will certainly discourage a potential buyer because the message you send is "there is not enough space in this home." Solution: get rid of it. Throw away as much as you can tolerate and pack and store somewhere else the things you can't (like the warming tray you never use).
• Landscape: Curb appeal. First impressions are everything. Mow, weed, trim and get some seasonal flower color for your home as seen from the street. In fact, sellers need to walk out to the street and look back at their home. Would you buy this home if you had lots of choices? You have to be brutally objective.

• The details: How about the outside metal fixtures? Are they discolored? Falling down? Tarnished? How much better would it be if you replaced those weathered brass fixtures and trim (like front door kick plates and door knockers) with bright shiny new ones? I say it is essential! Impression. Impression. Impression. Same with a weathered, worn wood deck. If it is beyond sanding, re-staining and/or sealing, it should be replaced. Garage doors? If you are like me, garage doors typically attract neglect. If they are rotting, the best thing to do is replace them. We have had good results with aluminum replacements painted to match the house trim. Short of total replacement, I have replaced just the bad panels if they are of a standard style. I've done this on my own home.
• The kitchen: Chances are that if your appliances are more than 10 or so years old, replacing them adds real value to a potential buyer. Especially, if you have cooked on grease and stains that cannot be removed. Those Formica or laminate counter tops? Synthetic or stone counters are expected, especially in newer homes that you may be competing with.

This sounds like a lot and maybe it is. If your home is in "like new" condition you will have a better chance of selling in a shorter time for the highest price possible. We are great at marketing our listings to attract buyers but, your home has to "sell" itself.

From our experience, a 2,000 square foot home that requires inside paint, outside trim, new carpets cleaning, decluttering and some landscape spruce up will cost in the $10,000 to $15,000 range. A 5,000 square foot home we listed required all of the same plus new medium grade appliances, new interior/exterior door hardware and hardwood floors refinished and the price tag came in at about $32,000. The questions: Is it worth it to do all this? Will I get my money back? The answer: What is your cost if it doesn't sell. A lot of this is what I call "deferred maintenance." If you are not maintaining while you own it, you will need to spend the money before you list to attract a buyer. The market is brutally competitive! As a seller, you want to be a "top seed" (like in tournament rankings).

These are only the major items to consider. There may be others. All homes are unique in some way and may require other work. An objective evaluation would be in your best interest. Preparing to Sell: Part II will be about the next step: Making the emotional connection with a buyer.

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February 4, 2007

Or, maybe it is always wacko. An article yesterday in the Washington Post has me shaking my head. A survey conducted reports that 90% of the appraisers surveyed indicated they were pressured to raise their appraised value. Here's the excerpt:

Appraisers Under Pressure To Inflate Values

By Kenneth R. Harney
Saturday, February 3, 2007; Page F01

With home prices softening and sales volume sagging in many local markets, real estate appraisers say that pressure on them to inflate values has reached pandemic proportions.

A new survey of the national appraisal industry found that 90 percent of appraisers reported that mortgage brokers, real estate agents, lenders and even consumers have put pressure on them to raise property valuations to enable deals to go through. That percentage is up sharply from a parallel survey conducted in 2003, when 55 percent of appraisers reported attempts to influence their findings and 45 percent reported "never." Now the latter category is down to just 10 percent.

Read the full article.

Can appraisers be wrong? Probably. An appraisal is simply an estimate of market value. Appraisers live by an industry code of ethics and industry standards. Their work needs to stand up in court. The biggest offenders are mortgage brokers (the middle man) and real estate brokers. Both want the "deal" to close. Sellers are on this list too. Feeling the pain of sitting on the market a long time, they don't want their contract to go south because it didn't appraise and the buyer potentially walks away.

I have had less than desirable appraisals on a seller's listing under contract. We first ask to see the report. We have an opportunity to offer questions about the estimated value. We can even offer our own comps that the appraiser did not consider. But, in the end, a good appraiser will stand by his or her work and only modify an opinion on hard facts. Maybe asking questions and offering more data is interpretted as "pressure." Beyond that, here are the sellers and buyers options (notice "pressure the appraiser" is not in the list):

• Re-negotiate the selling price. I had one where the appraisal came in $20,000 low. The buyer and seller agreed to a new contract price $10,000 lower than the original offer. A win-win conclusion in this case. Of course, the buyer had to come up with the extra cash to purchase the home because the buyer was financing at 80% of the appraised value. Lender underwriters need a number to hang their hat on; the appraised value is that number.
• Seller may not be willing to negotiate risking the buyer walking away from the deal.
• The buyer simply walks away because of the low appraisal. Happens all the time.
• If the buyer and mortgage company agree, obtain a second opinion at the seller's expense. Then go back to the top of this list.
• Are there other options? I'd love to read your comments or real experiences.

Appraisers I know say that even an experienced appraiser's report may have a margin of error of +/- 5 to 6%. So on a $500,000 property that is +/- $25,000 at a 5% margin of error.

Are there dishonest appraisers? Sure, just like dishonest real estate agents, brokers, lenders, clergy, police and (fill in the blank) ________________. When there is money involved, many will go over the ethical and legal line (or maybe just straddle it which is just as bad). Harvey concludes his article by offering this view by an executive of a large appraisal firm:

Bottom line in Hummel's view: Congress needs to enact legislation making pressuring appraisers to distort their valuations, or interfering with appraisals in any way, a federal offense, subject to criminal penalties. And state regulators need to step up enforcement against fraudulent appraisals, pressure tactics and appraisers who give in.

I still can't get over the 90% figure from the survey. No wonder our industry has a bad reputation. I'm feeling a little dirty. I think I'll go wash my hands.

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January 2, 2007

I've had discussions with two potential clients in the last two weeks and both are upside down. Definition: they most likely will have to bring money to the table when they sell. The underlying problem is the same in both cases but with different circumstances. Here is part one of a two part series:

Seller 1: Enjoyed living in a 20 year old colonial on a good lot in a desirable neighborhood for nearly 19 years. They made several improvements in that time including an addition on the back of the home expanding the living area and finishing the basement. Seller 1 made the decision to "move up" to a larger new construction home in early 2005 (the beginning of the market turn) and took out a "line of credit" second to make the deposit. The appraisal on the existing home came in high as comps were those sold in the later part of 2004.

They were on the market in the spring at an optimistic asking price (aka: greedy price). One month after the initial listing, they closed on their new home and moved out. The listed home was now empty revealing all of the ugly blemishes. Two agents and 9 months later, the home has not sold. They lowered their price several times but always too late. They were following the market down, not leading it.

Upon visiting the home, we discovered several deficiencies. Deficiencies that would perhaps be overlooked in a strong sellers market but not now. Carpeting was badly worn and stained, the hardwood floors were awful and the interior paint was OK but not fresh. Using a buyer's eye, all I saw was work that would have to be done if I otherwise would consider this home. There are too many homes on the market that do not require "freshening."

The painful "blood rush" headache came when we advised that the work required on the home to be competitive is at least $5,000, the probable list price was $20,000 less than what they owed, and selling costs would most likely be in the $25,000 range and it might take a long time to sell. The rub: neither prior listing agents did them any favors. The first agent collected the "new home" commission with a reduced listing fee on the resale. The second agent did not advise their client on "freshening" to be competitive and continued the inflated asking price in a downward market. This is not to say that this client didn't have a hand in the greed price. (See Egocentric influences on pricing a home.)

It's always hard to be the bearer of bad news. I would rather not have the business than to mislead a potential client. I even advised them to get a second opinion from a reputable agent (like consulting before major surgery).

Furthermore, the seller's mindset at this point is to try and sell in the next few months and then go to plan B: list it for rent hoping the market will turn sometime in the future. The rental market is not all that great either.

Here's where a fee for service arrangement helps this potential client while paying us for our expenses: (A) client pays up front marketing costs (all the things we do to list and market the home) and then (B) pays a success fee if we are lucky enough to get a ratified contract that goes to close. The success fee pays for the contract to closing activities we perform. The total fee is much less since we are sharing risk.

The bottom line: There are many, many more of these stories...and they are being created as we speak (or write, as the case may be). Make sure you are getting the very best advice, you have all the data to make an informed decision and DO NOT over commit!

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December 7, 2006

The Blogging world is buZZing this morning about Zillow's announcement last night offering free listings tied to your homes tax and sales history in their gargantuan data base. And, it is up and running. Zillow is taking aim with their sharp, swift sword at the heart of the real estate industry. Every real estate blogger on the planet is reporting and offering opinions on the significance of this announcement and capability. My favorite commentary can be found at

• the BloodhoundBlog (Greg actually had advance notice),
• sellsius,
• Ardell and Galen at the Rain City Guide,
• Kris Berg at The San Diego Home Blog,
• Inman News and
• Jim at Real Central Virginia.

The significance of this might well be to make every MLS obsolete, realtor.com irrelevant, Google Base old fashioned, Craig's list history and significantly transform the role of a real estate agent as a central figure in the transaction to one of a real estate transaction advisor as buyers search for homes and sellers are empowered to market their own homes on a massive scale. The difference between Zillow and the rest of the world is the integration of "free" listings to the tax and sales records of nearly every property in the US. Will there be kinks? Sure, but these guys can figure out how to smooth them out. Incredible!

There is no better time for every real estate agent to figure out how to transform their business from sales agent to consultant. It may take awhile but, I truly believe this may be the single event that will force the industry to change. It is serendipitous that Pam and I had the vision to establish our business on a consulting business model with a complete, transparent fee schedule.

Watch for the mark of Zillow coming from the tip of their long sword of innovation on everything real estate. I love it! See Zillow now.

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December 5, 2006

The annual Cost vs Value report was published December 1st by REALTOR® Magazine in cooperation with Remodeling Magazine. The report covers 25 popular projects in 60 cities.

Prices for most remodeling projects continue to climb, while the recoup value of improvements at resale is declining to levels last seen in 2002. These are the findings of Remodeling magazine's 19th annual "Cost vs. Value Report-the eighth prepared in cooperation with REALTOR® Magazine. None of this should come as much of a surprise to you: This year's recoup values confirm the housing slowdown many parts of the country are experiencing.

With both home-sale and remodeling activity at record levels in the last five to six years, some cooling is inevitable. Indications are that the current downturn represents a return to "normal levels. (See "No cause for alarm")

Read the REALTOR® Magazine overview at Making Home Improvements Pay. Summary data is included for major regions of the country.

The Washington area is one of the 60 cities/metro areas covered. Down-loadable PDF reports for each of the 60 cities can be purchased for a nominal fee at Remodeling Online.

In the DC Metro area, a two-story addition returns a whopping 105% and a fiber cement siding replacement for tired vinyl or aluminum returns nearly 99%. A home office remodel returns the least at 83%. On average, The DC Metro area has higher returns than national averages. These are taken from the purchased Washington report.

It is often more beneficial to remodel and/or upgrade an existing home instead of trying to sell and buying into the features you desire. Especially if you otherwise love your house and neighborhood. The only caution is to be careful not to over do it compared to the surrounding area. You may have a hard time selling and get even less when and if you ever do want to sell.

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September 16, 2006

A must read article from the Washington Post:

Valuation Gets Tough When Sales Slide
By Kenneth R. Harney
Saturday, September 16, 2006; Page F01

In cooling real estate markets, it's one of the hottest questions: How do you value a specific piece of property when local home sales are down 20 percent to 40 percent from last year, inventories of unsold homes have ballooned by 200 percent or more, and all the trend lines are pointing negative?

It gets harder and harder. Our advice to sellers: look around, objectively compare your property to similar homes on the market, make your home look and feel better than your competition, price it in the lower 10% of the competitive range and be willing to negotiate. If you can't make it the best home on the market at a value price, then make it a bargain.

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March 30, 2006

RealEstateABC.com launched their own home valuation tool free for consumer use just a few weeks after Zillow announced their beta site. Called ABC Value™, it operates on the same principles, namely public records and recent sales. I find it easy to use and I particularly like the easy way to adjust for value based on general interior amenities, exterior, lot size, view and noise/traffic factors. I also like the feature they included for market conditions; cold, average and HOT. After these adjustments, you can also adjust for square footage of the home if the tax record is wrong. ABC makes it very clear that these are only estimates and "For deeper insights, contact a local real estate expert." Here are some screen shots (click for a big picture):



Selecting your own comps from the local area around your property is as easy as clicking check boxes. ABC Value™ doesn't have all the cool charting that Zillow does but then again, it is quick and easy. Testing a couple of my current listings I found it to be as accurate as Zillow and better with the value adjustments provided (remember, you have to be objective as most home owners are not).

Let the race begin! Read more about RealEstateABC.com...

About RealEstateABC

RealEstateABC.com was started in March 1998 with the goal of providing a site that candidly informs homebuyers and home sellers about the real world of real estate, without puff, hype or sensationalism. We want to help consumers with insight into how things really work with straightforward analysis of market trends and "how to" guides.

This philosophy applies to all the resources on our site, including the Agent Directory and the Home Values tool. Most Agent Directories focus on having the greatest number of agents, but we want the best. So we continually work to put the most informative agents in the directory and we list the agents in the geographies where they are experts. Our Home Values tool helps consumers with the central mystery of buying or selling a home, "what is it worth?" By providing an "ABC Value™", an estimate of value of the selected property based on recent home sales, the consumer has a starting point which they can refine further based on their knowledge of the specific property and by working with a local market expert, a real estate agent.

We've been gratified by the response to RealEstateABC.com from consumers and real estate professionals:

• Our "how to" guides appear on over 30,000 real estate web sites RealEstateABC.com is one of the most-linked-to real estate sites on the web
• Our site has had numerous mentions in the media including being named "Cool Site of the Day", featured on CNBC's "Power Lunch", and named by PC Magazine as one of the "100 Best Sites You Didn't Know You Couldn't Live Without"

RealEstateABC.com is part of InternetBrands.

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February 21, 2006

I am going to make some BOLD statements:

• TAX ASSESSMENTS HAVE NOTHING TO DO WITH THE MARKET VALUE OF A HOME
• APPRAISALS HAVE NOTHING TO DO WITH THE MARKET VALUE OF A HOME
• CMA'S HAVE NOTHING TO DO WITH THE MARKET VALUE OF A HOME
• ZILLOW ZESTIMATES HAVE NOTHING TO DO WITH THE MARKET VALUE OF A HOME
• YOUR NEIGHBORS OPINION HAS NOTHING DO TO DO WITH THE MARKET VALUE OF A HOME
• WHAT YOUR NEIGHBORS SOLD FOR 6 MONTHS AGO HAS NOTHING TO DO WITH THE MARKET VALUE OF A HOME
• ALL OF THE ABOVE HAVE SOMETHING TO DO WITH THE MARKET VALUE OF A HOME

SUPPLY AND DEMAND HAS EVERYTHING TO DO WITH THE MARKET VALUE OF A HOME

Property and homes are commodities, pure and simple. High demand and low supply drives prices higher and the asset becomes more liquid (easier to sell). Low demand and high supply drive prices lower and assets become less liquid (harder to sell). Market value is ultimately determined by what a buyer is willing to pay and a seller willing to take. I hear the following statements from consumers: Well, I can't sell for less than my tax assessment! My home is worth at least my appraised value! My neighbor said... My Mom told me... The one down the street sold for...and my home is better... Zillow says...

Let's take a look at my BOLD statements one at a time...

• Assessments: The tax assessor compiles general data about about home sales in specific areas in a jurisdiction looking back the last year. Yes, the last year. County records are incomplete, contain very little detail and is fraught with error. The assessor has no way to evaluate the quality of a property; condition, how well it is maintained, amenities, or any other qualitative measures. When was the last time an assessor visited your home to determine these things? Never! Markets change and can do so rather quickly. Your assessment has everything to do with generating revenue for the jurisdiction and always lags current market conditions. The average Loudoun County home sales price went up 23% last year. The average assessed value went up a bit more than that. Some individuals more, some less. There was strong market demand the first half of the year. Prices rose rapidly. There has been extremely week demand for the latter part of the year. Demand drives market value. The assessor doesn't have it. If anything, if you believe your assessment is too high, appeal it!



• Appraisals: Appraisers have a little better handle on market value. They visit the property, take measurements, take pictures, note features and amenities, have opinions on quality and condition and are out in the market and have a pretty good idea of what's happening. They see lots of homes. They approach residential value from two perspectives, current cost to build (cost models that take into account lot, size of home and amenities) and comparable properties that have sold (usually in the last six months or so). The are also looking backward. Appraisers have algorithms and formulas for adjusting value based on comparisons of location, lot size, square footage, age, condition and amenities. Banks base their loans to buyers on an appraisal. But again, they are looking backward. A market value appraisal performed for a seller 3 to 6 months ago does not reflect current demand. So, we need to be careful on how we use it, if at all.



• Comparable Market Analysis (CMA): This is the method used by most real estate agents. It is not only a comparison of similar properties that have sold (backwards looking in time), but also a comparison of similar properties currently on the market. We also look at location, condition, size, quality and amenities as well as time on market (an indicator of market condition). Knowledgeable, experienced agents will not provide a specific market value. Instead, they will provide an approximate range of potential value. We will also take into account buying patterns of consumers. For example, wood floors, upgraded cabinets and appliances, granite or stone counter tops, finished basements and home theaters are in strong demand. It is expected in certain price ranges. And, in a buyers market homes that have these features will be the first to sell everything else being equal including price. So, if a home does not have these, a much lower price is what will attract a buyer. Adding these amenities will not necessarily allow you to set your price higher than comparable. Adding these may, in fact, simply allow you to compete with other properties on the market that do have them. Bottom line: CMA's do not set market value...they are just estimates.



• Zillow: New, exciting, cool, presents lots of information. Zillow bases their Zestimates on public records. See Assessments above. End of story for Zillow.



• Neighbors, Family, Friends ET Al: These lovely trusted people have opinions. If they are not real estate agents or appraisers that have not done the necessary homework, they don't have the data. Respect their opinion but don't listen.



• All of the above (except #5): All of these are helpful in estimating market value and we use all of them. We show potential clients how we use each of these to "triangulate" determining the most probable range of value. We use our market data studies, in general, to advise clients on what to expect. In a buyers market, sellers would be advised to set their price lower in the range. In a sellers market, higher in the range. Of course, competitiveness of the property plays a big factor as does the market price range sellers are in. Entry level properties have more potential buyers, high end properties have a significantly smaller pool of potential buyers. Of course, there are other personal factors to consider such as how fast a seller needs to sell for whatever reason.

Sellers are not only competing with other sellers, they are competing with new home builders. In our current market, new home builders are offering huge incentives to buyers to move their inventory. These include all the bells and whistles mentioned above and/or CASH.

The conclusion? Pricing and presentation are everything in attracting buyers. Estimating market value is as much an art as it is a science. Be prepared to be logical and realistic above all else. Our job is to apply the art to the science and help sellers get the highest value that the market will provide.

Here is some other interesting and relevant reading:

Balanced market creates new approach to home selling

Previous listing strategies may backfire in 2006
Monday, February 20, 2006

By Dian Hymer | Inman News

There are plenty of home buyers intent on buying while they can still lock in a relatively low mortgage rate. So, the 2006 housing market should present good opportunities for sellers who understand how to maximize profit in this new, more balanced, selling environment...

The first step is to start thinking like a buyer, not a seller. Although buyers are anxious to buy before rates rise further, they know that the appreciation rate is subsiding.

When the market is rising quickly, buyers are less concerned about overpaying because they're sure they'll recoup the excess payment within a few months because of robust appreciation. This was the psychology of last year's buyer. Now, buyers are much more concerned about value...
Read the whole story here.

And from my favorite Massachusetts agent, Mollie Wasserman, this and other insights from her blog about using information:

What the Internet Can and Cannot Do

It is often said that “the only thing new in the world is the history that you don't know". This saying kept going through my brain last week when a new home valuation web site named Zillow was launched to a lot of buzz. The press, as usual, carted out the same tired (and wrong) prediction that it has made for fifteen years: that home valuation sites like these will put Realtors® out of business or at least greatly reduce our fees.

Actually, over the last dozen years, the opposite has transpired: it doesn’t matter whether you are talking about law, medicine, accounting, mortgage or real estate; the more that the public uses the internet to gather information, the more they turn to professionals before they make major decisions. That’s because there is a huge difference between gathering information and interpreting it.

Over ten years ago, I penned a Real Estate Internet Warning that seems even more relevant today than it did then:

REAL ESTATE INTERNET WARNING© Despite advertising claims to the contrary, the internet is NOT an experienced Real Estate Professional. It cannot consult, counsel, advise, have knowledge of local laws and market conditions, make judgments, "own" the result, or most importantly, understand your individual goals and needs and care about you as a Client. Furthermore, while the internet can provide information, it cannot interpret it. To obtain an accurate assessment of any data you're receiving online, please contact us.

Mollie Wasserman

The rest of the article here.

Comment on All About Property Market Values. Follow this article is off. More articles like this one filed in: Market Value , Opinions

February 10, 2006

There is Zillow buzz all over the net. Many different reactions. I'd guess equal on both sides of the great/not-so-great evaluation. It just might become the best FSBO site in the universe. But, until they have total MLS access (and even they say it is not practical) I don't think they can reliably get the values right. And, if the FSBO's of the world rely on Zestimates, I think more business is headed our way.

REALTOR.com© may be the closest thing to a national MLS. I would love to help them with valuation models if they would change their mindset away from just "finding homes for sale." There are a Gazillion reasons why this would never happen.

Comment on What's All the BuZZ I Hear?. Follow this article is off. More articles like this one filed in: Buying & Selling Real Estate , Market Value , Opinions