Computerized Appraisal Problems

Computerized appraisals have been an issue for awhile, but recently, they have become a problem for a much larger group of people.

Appraisals done by people in general are both objective and subjective, which means that often if you had two professional appraisers come to your house, you would likely get two different price opinions, if they did not have a target price to go from.

Computerized appraisals are just that. It uses transactional data information but does not take updates and other ancillary details into consideration. According to the Wall Street Journal article by M.P. McQueen,

Automated valuation models were pioneered by Yale economist Robert Shiller, who developed the first systems in the early 1990s. While arguing that these appraisals are more objective than human appraisers, Mr. Shiller and others say that in some situations the models may be providing unrealistically low values, prompting lenders to reject loan applications or lend less money on particular properties.

I have to question as to whether the data is similar to those used by Zillow Zestimates to find value. Baltimore County Zillow Zestimates have been well off in many situations, and the disclaimers on their site are many. Their CEO & CFO explained their data issues to me, and I discussed them in my post about misleading Towson Zestimates.

If owners have tax credits or have lived in the property for a long time, that can easily skew results, creating an incorrectly low “appraisal” or Zestimate.

So, if you are looking to refinance your Baltimore County home, be aware of computerized appraisals.

Why Do Some Houses Sell While Others Stay on the Market?

Why do some houses sell while others stay on the market?

A very good question. The answer is rather simple: price & condition.

In a Towson neighborhood where there could be 3 houses that have been on the market for months, a new one comes on. There is a flurry of activity, and the house goes under contract quickly.

Why this one? Why not the others?

The likelihood is that this Towson homeowner had their home in a staged, beautiful condition, and it was priced RIGHT. The other three may have overpriced when they first listed in an attempt to “test the market” or their house isn’t in top notch showing condition.

This video, from Jay Papasan, Vice President of of Publishing for Keller Williams Realty, and co-author of a number real estate best-sellers, demonstrates why some houses in the same market sell while others may not. His graph is a great visual of understanding!

Contact me, your Towson Realtor, to find out true Towson house values.

Misleading Towson Zillow Zestimates Explained Further

As I wrote March 2, Towson Zillow Zestimates in general, are statistically off by a large amount.

Last week I had a client call me because his HELOC was reduced by a large amount right in the middle of construction to improve his home. He could not understand how the bank could make the determination that his Towson house value had dropped over $200,000 in the past 18 months since he opened his HELOC.

Upon speaking to the bank, the representative pulls up Zillow, and proceeds to tell him this is how they discovered the value change.

“Is this true? Has my value really dropped by THIS much? I knew we were in a depressed market, but did not think it was THIS bad,” he asked me.

Based on a true market analysis, his value has really only dropped by $25-50,000. So how is Zillow off this much?

Enter the powers of social media!

I was able to find both the COO & the Director of Community Relations for Zillow on Twitter.

I contacted COO Spencer Rascoff and he tweeted back:

“Lenders shouldn’t rely on Zestimates. Use an appraisal.” “We have “a Zestimate is not an appraisal” language all over the site. http://twurl.nl/7lj6mc “

He then emailed me directly because he wanted to get to the bottom as to why they are so far off.

Director of Community Relations David Gibbons tweeted:

“…it may not change outcome by he {sic} can’t reduce heloc based on Zestimate alone.” “Lenders are supposed to use commercially licensed AVMs & appraisals, not Zestimates!”

While they are both correct, and I agree with them wholeheartedly, lenders ARE using their site, and if the site’s purpose is to provide real estate information, then the site should be more accurate.

Through emails and more discussion, I was able to find out more about how the Zestimate values are determined.

David direct messaged me that it: “looks like your purchase price and taxes have the biggest impact on your Zestimate…”

I asked what that had to do with a current value of a home, because there is no correlation whatsoever in the real estate market from what you paid for it and what it is worth now.

His answer: “homes only sell on average once every seven years so when figuring out what a home is worth its last price is important – though 2002 is…we count past sales in less and less over time … a sale last year would have much greater impact.”

NO WONDER the values are off so dramatically. And if Zestimates continue to be calculated in this respect, then we should be looking for values to be tremendously off in 2013-2014 in the other direction. So my client can be assured that in 3 years his Zestimate should be approximately $200,000 OVER true value!

Please be aware that the Zillow Zestimates, at least in the Towson market area, may have no relationship to the true value of any home.

This reiterates the point that REAL ESTATE IS LOCAL and, as COO Rascoff wrote: “a Zestimate is not a replacement for a real estate agent. Far from it.” For your free Towson Home Price Estimate, contact me today!