This is me from today’s Arizona Republic (permanent link):
Use full appraisal to correctly assess house’s true value
Who can best judge what a piece of real property will sell for?
We all know the answer to that. The best estimate of the value of real estate will come from an experienced real estate appraiser.
After that, a Broker’s Price Opinion will come second. In certain very homogenous neighborhoods, a Price Opinion may be just as accurate as a full appraisal.
Third place belongs to an experienced agent’s Comparative Market Analysis. This can be very accurate in homogenous neighborhoods, substantially less so where homes or lots differ significantly.
Last place goes to the results produced by an Automated Valuation Method, such as Zillow.com or Eppraisal.com. An AVM does not evaluate houses, but rather provides statistics and records about houses. It cannot, for an extreme example, tell you whether the house is still there at the time of the evaluation.
It is fairly common to hear people say that AVMs will get more accurate in time. In fact, there is a finite limit to how much they can be improved.
A CMA is essentially an all-paper calculation. But a CMA is produced by an agent who has a great deal of on-the-ground experience, most of which will never be encoded into an AVM’s software. Amenities such as landscaping, decor, orientation or views cannot be accounted for by an AVM.
But the other end of this question is need vs. costs. If you want to know what your supervisor’s house is worth, use Zillow.com. It costs nothing, and close enough is good enough.
If you need to know what to offer on a house you want to buy, you need a CMA at the least. The good news is, your agent will probably provide it free.
The same is probably true for a Broker’s Price Opinion, which you will want if you are planning to sell a home.
But if you need to know the value of a piece of real property to a very high degree of accuracy — for instance, to qualify for a mortgage — you’re going to pay $300 or more for a full appraisal.
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Kris Berg says:
I have to disagree right off the bat. There is book value and then there is market value. The appraisal may be considered superior in that it considers only the facts, the specific features and amenities of a particular property, without inserting subjectivity. But subjectivity is an enormous factor in what a piece of real property will actually “sell for”, as you put it. Therefore, my money in on the Broker’s Price Opinion or the Comparative Market Analysis. This is assuming that these are prepared by an agent intimately familiar with both the neighborhood and the local real estate climate. As an agent, I know from experience and a little gut instinct what the buyers are buying and why at any given time in my area. I sense latent demand for a particular product or location. It is the intangibles that often have the greatest effect on what the buyer will pay.
Don’t believe me? What is the first question an appraiser asks? “What’s the number we are looking for?” An appraiser establishing value for the bank during a sale will start with the purchase price and set out to justify it. The appraiser for your refinance will start with the desired value, and the appraiser for your property tax valuation challenge will look at the situation differently yet. Three appraisers, three values.
So, your answer may have been more correct for a different question. What is it worth? Ask the appraiser. What will it sell for? Ask the agent.
December 1, 2006 — 7:48 am
Jim says:
Let’s also not forget that for residential property, an appraiser will go straight to MLS for his data. The only thing he’ll do differently is he’ll follow a strict checklist and perform his analysis by the book. But as Kris said, we can do the exact same analysis, plus a little subjective opinion. I’ve seen homes sell for 20% below appraisal, so they’re not the final word.
December 1, 2006 — 8:05 am
Greg Swann says:
> Therefore, my money in on the Broker’s Price Opinion or the Comparative Market Analysis.
I agree with you — in some circumstances. For a lot of Phoenix-area homes, I can tell you to the dollar what it will sell for. But there are others for which we turn to a spot appraisal — very different from a lender’s appraisal — as a matter of course. As a marketing tool for listings, I love having that appraisal report on the kitchen table.
Note also that I came not to praise Caesar but to damn Cassius.
December 1, 2006 — 8:18 am
ardell dellaloggia says:
“We all know the answer to that. The best estimate of the value of real estate will come from an experienced real estate appraiser.” Sounds like you are praising Caesar…who’s Cassius and why is he damned?
Anyway, I’m with Kris and have two recent examples.
One, an acquaintance stoppped by and said her house appraised for $750,000 for divorce purposes…her husband was buying her out. I said no way. It would list at $999,950 and could go either way under or over that line. It was very early this year and the appraiser was using 6 months of comps over the slow season, with insufficient data. Plus the market here climbed dramatically between 2005 and 2006. I told her to ask the lawyer to stall for six months so that the “hindsight” used by the appraiser would be the 2006 season. It re-appraised for a million at the end of summer. Sometimes hindsight doesn’t work very well.
I have one now where the seller moved based on an appraisal of $850,000. The agent who sold her the new house told her “no way” could she list it at more than $800,000, and it was listed at $799,950. $50,0000 less than the appraiser told her it was worth when she was moving out. She reduced it to $775,000. Before you say bad appraisal, I took over the listing and had an offer at the Zillow Zestimate of $725,000. The second appraisal, a completely different appraiser, put it at $795,000 even WITH a purchase and sale at $735,000 to “aim” at. It is still on market at $750,000, fell out of escrow.
As Kris says, most appraisers just aim at the sold price. The only two examples I had this year where the appraiser wasn’t given the benefit of a purchase and sale contract to aim at, came out far from “market value”.
Getting offers at “the Zillow Zestimate” is scary, but so are these appraisals. Is there any recourse for an owner who decides to move based on an appraisal that is $100,000 more than her current list price? She’s carrying both mortgages and she never would have moved in the first place had she know the market value was less than $750,000.
December 1, 2006 — 10:45 am
Joe says:
Don’t forget about all the concessions and incentives being offered today, either – how many appraisers are aware of incentives being offered on a given sale, and how many of those appraisers then make the necessary adjustment?
December 4, 2006 — 12:30 am
appraiser tim says:
I am an appraiser with 15 years of experience. I just completed a continuing ed course taught by an appraiser with over 25 years of experience. Throughout the course the appraiser referred to story after story of relying on professional, experienced, neighborhood specific realtors for obtaining the most valuable information in determining property values.
Mind you this appraiser was in Orange County CA, the class was Appraising Custom Homes, the appraiser performs appraisals for high-end custom homes; many with waterfront sites or at least ocean views. The technique he applies to his appraisals came directly from a local realtor who with amazing accuracy predicts selling prices for properties throughout his market area.
However, just as in the appraisal profession there is only a small percentage of realtors who have the ability to properly determine property values.
December 12, 2006 — 1:56 pm