Figuring the Value of My Home

How Much Is My Home Worth?
     People wonder about how accurate free home value websites such as Domania.com and Zillow.com. While these sites might be starting point for satisfying one’s curiosity, I caution against relying on these sites for buying or selling decisions.
     The folks at Zillow.com are pretty bright. They realize the average Internet user gravitates toward sites that make them happy. Zillow makes millions of users happy by providing values that users like, but those values do not necessarily represent current market conditions. While Zillow is the most widely recognized home value service, it is not the most accurate. The truth is, there is not much that is groundbreaking about the technology associated with Zillow and their online competitors. Known in the lending world as Automated Valuation Models, or AVM, the utilization of complex formulas for determining broad-scoped property values has been around for years. The most accurate AVM services however cost money and therefore are not utilized by the average consumer. Because Zillow offers its services to the consumer for free, the AVM service they utilize is often less precise.
     Automated Valuation Models are inherently flawed. These services pull their information from public record sources, which are often erroneous. The machines that collect the data contained on the web sites have never been in your house or in your neighborhood. They haven’t looked at the scenery around your home or looked out your windows at the spectacular view that you have, and cannot take into account the size or the upgrades made on your home. These are the changes that public records don’t record immediately or, in some instances, at all. As any real estate professional will tell you, there are just too many variables not considered by Zillow and other AVM services.
     Market trends also determine property value. With the exception of a few of the most detailed services, most public AVM’s like Zillow.com and Domania.com are irrelevant when home values are trending up or down at rates above historic levels. In Arizona, (as of the time of this writing,) the current Maricopa and Pinal County housing markets are extremely fluid and in some segments change monthly. By relying solely on historic sales activity – without considering active listing inventories, foreclosure rates and average exposure times- you are more likely to receive misleading information in today’s environment than in most previous periods.
    

Don’t Depend Instant Home Value Listings
     To illustrate the disparity that can occur among an online value versus an appraised value, I ran three different properties in Maricopa County through Zillow. First, I ran a typical tract home in a newer outlying community with several different builders. This development has been hit extraordinarily hard by the changes in market conditions and property values have dropped significantly over the past year. Unfortunately, Zillow appears slow to reflect these trends as the value provided by Zillow was well above several active listings with similar square footage and similar features at the subject address. In my estimation, the value provided by Zillow was overestimated by by at least 15%.
     Secondly, I found an older home in a Scottsdale custom community that is surrounded by newer, higher-end properties. It appears that the Zillow valuation overemphasized sales of these higher-priced homes within a short distance, while failing to consider similar older homes that are a little further away. In my estimation, Zillow overstated this value by at least $200,000.
     Lastly, a property in Phoenix near the Paradise Valley area was overestimated by Zillow because Zillow utilized home sales almost exclusively from Paradise Valley. Obviously a property simply near Paradise Valley would not demand a premium such as one that is in the Paradise Valley town limits.
     As Zillow maintains on their own website, there is just no adequate substitute for the professional expertise of a Realtor or Certified Appraiser. Professional Realtors, with localized experience, have the benefit of an intimate knowledge of each sale and listing in your area. The have seen inside of other listings and sales in the area. Realtors often have access to buyer/seller circumstances that may have impacted a sale, and this can often lead to a more accurate assessment of the relevance of these sales.  This is invaluable in developing an appropriate list price. Certified Appraisers are also important in gaining an accurate home value. Appraisers can provide the most accurate square footage with actual field measurements. In addition, appraisers are completely unbiased and should be free of any outside influences, providing a true neutral perspective on the home’s value. Appraisers, as opposed to a computer model, have a more immediate understanding of market trends specific to a market segment and will be better positioned to note market changes in establishing value.
     The skills of Realtors and Certified Appraisers compliment each other. Together, their input can lead to a more accurate assessment of current market conditions, exposure/marketing times and specific market forecasting – all of which can lead to a more reliable conclusion for you, the homeowner.

 Jay A. Josephs, President of Josephs Appraisal Group may be reached at www.jaginc.net or 602.955.4050.

 For more information, visit I Want to Find Out the Value of My Home, How Do I Do It?