Home Value Estimates: Agent CMAs vs Zillow vs Appraisals; We Like CMAs
ZILLOW GONE BAD
A Realtor we know had to spend over an hour last week explaining to a seller in a high-end market why her house was worth $200,000 less than Zillow said it was.
Her property sits on a 1.5 acre parcel, but her backyard is a cliff. Zillow did not account for the fact that her “effective usable lot size” was less than a 1/4 acre.
This is one of many major problems with Zillow estimates.
APPRAISALS GONE BAD
In our “Mortgage 101” presentations for Realtors, I talk about a transaction of ours that received ten solid offers over $1 million. Every economist in the world would insist that the “market value” for that property was over $1 million (b/c of the ten solid offers).
The appraisal, however, came in at $850,000 and there was nothing we could do about it b/c there were no closed comparable sales over $800,000. And appraisal guidelines preclude the use of pending sales and other offers.
WHY WE LIKE REALTOR CMAS
A Comparable Market Analysis from an experienced Realtor is often the best indication of value for a few reasons: (1) it is far cheaper and faster than a formal appraisal; (2) it is often more accurate than appraisals and far more accurate than a Zillow, Trulia, Redfin, etc. estimate.
This is b/c Realtors are not constrained by guidelines (like appraisers are), they can see the exact current condition of a property with respect to location, updating, etc., and they can account for pending sales, other offers and the most up-to-market conditions.
The only drawback we see to CMAs is too strong of a reliance on a neighborhood’s “price per square foot” analysis b/c that statistic can be significantly skewed by lot size or property size. For example, an unusually small home on a very large lot will yield a price per foot figure that should not be applied to a neighboring home that is twice as large.
ZILLOW, TRULIA, REDFIN LIMITATIONS
While “Automated Valuation Model” (AVM) software like Zillow, Trulia, Redfin and even lenders use is becoming far more sophisticated, it is still severely limited. This is b/c it cannot account for the latest property updates, all of the external influences (nearby school, freeway, cemetery, etc.), lot-sloping and contours (like in the example above), and the latest market conditions (pending sales, multiple offers, etc.), among other things.
Our appraisers are brilliant, and this is not a slight on them in any way, but “appraised value” is often not “market value,” as I illustrated above. This is b/c appraisers are constrained by appraisal guidelines. They can only use recently closed comparable sales (within 3 months), they can’t correlate to pending sales or other offers in any way. Appraisers also have to stay within immediate neighborhoods, and cannot cross barriers like freeways, rivers or train-tracks. And they can only correlate to homes that are very similar in size (within 20% of the subject property’s size).
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646