Zillow shows my house lost $5K this week

[Bugs]

I like the idea that more people have easier access to the raw data. I wouldn’t get too wound up in the conclusions Zillow draws, especially when you consider how the inclusion of outliers and non-market transactions can corrupt the data pools being used. But if you use a little judgement on which data is valid you can do your own analyses.

I think the easiest way for people to use that data is to print it out and start driving by these sales. In a given neighborhood it won’t take but half a dozen or so to give you a baseline to start forming your own opinions. I am 100% in favor of data availability.

The automated valuation models that Zillow is following are already being used by lenders to make some of their decisions, particularly for their low risk loan underwriting and automated appraisal review functions. As with any type of analysis, the quality of the result depends in large degree to the quantity and quality of the data being used. As those information systems get ahold of better quality data their accuracy rates are going to increase as well. Most appraisers figure it to be a matter of time before AVMs are used more commonly than live appraisals, and that a reduced number of appraisers will be employed doing primarily the most difficult and technical of assignments.

AVMs do have the one stumbling block that going to hold them back for a while – at this point they can only attempt to mimic the subjective judgements that people use to make some of these decisions. It’s not uncommon for a buyer to be unable to articulate exactly what it is about a certain property that is calling their name when they see it. The machine’s got a ways to go before they can capture that pixie dust in an algorithm.

[carlislematthew]

Bugs (and other appraisers),

There is a lot said these days about appraisers being under pressure to appraise for exactly the purchase price, and not really being able to appraise for less because then you get less business from the lenders.

I myself experienced this when the house I bought magically appraised for exactly what I was purchasing it for. Similarly, for a plot of land! The price was exactly right.

I really don’t want to sound like an asshole, and I’m asking this question 100% seriously and sincerely: what do you *do*? I understand the basics of the job and how you appraise properties, but what percentage of appraisals have a “target” in mind and is it frustrating to have to meet that target? Or, is it frustrating to have people like me ask these silly questions? 🙂

Thanks!

[burger007]

house i live in lost $400 the past week.

[Anonymous]

Chris Johnston

I found the same thing with my house. I sold it last Aug for 2 million, and it shows it being worth 2.1 now. There is absolutely no way it would even sell for the price I got for it now. I do not know how they came up with that number, but it is not accurate.

[sdrealtor]

Funny, I think most people would prefer getting accurate information than inaccurate information.

[privatebanker]

I agree with SDrealtor on this. Zillow is saying that my home on the beach with a clear ocean view is only worth $890,000.00. It’s calculated by a bunch of averages in my Zipcode. Completely inaccurate. My neighbor is selling for multi-millions. Of course this place has been sitting for a few months like most high ends but it’s a beautiful home. I can see prices drop well below the $800’s here when rates are even higher and the market is taking a major dive. But prices have not corrected like that quite yet.

[Bugs]

In regards to appraisals hitting sale prices, let me first acknowledge that there are some appraisers who wouldn’t know how to appraise a property if they weren’t given a target value to hit. What can I say? Every occupation has it’s idiots and it’s those idiots who make life miserable for everyone else who’s trying to do the right thing. I can’t tell you how frustrating it is to have to come in after one of these guys and clean up their mess.

But there are legitimate reasons for appraisals coinciding with sale prices, too.

Any sales comparison analysis will result in a range of reasonable value indicators – sometimes very narrow and sometimes a little wider, depending on the quality and quantity of applicable data. As a result, Appraisals are almost always rounded to the nearest $1,000 or $5,000 (or even higher increments for the mega-houses) because to communicate it as an exact number implies an unrealistic level of accuracy. While it might be more honest for appraisers to communicate their opinions as a value range rather than a pinpoint number, most clients and users of appraisals are more comfortable with the single number. It’s easier for them to work with a single number than have to get into judgement calls of their own.

Most appraisers adhere to the theory that a sale resulting from adequate exposure in the market will generally be indicative of the market value, unless there’s some wrinkle to it. If a sale price falls within that reasonable range it’s customary to assume that the “tie goes to the runner”. For most homes this range is less than 3% of the total, so we’re not talking about situational ethics or anything like that.

It would be foolish and impractical for an appraiser to just pick an arbitrary number other than the sale price in such a case. I mean, for an $800,000 sale would it make any sense to conclude to a $795,000 value even though the $800k was also within the range? That kind of stubborness would do nothing but create problems for the lender’s underwriting even though that number is also reasonable.

A large percentage of appraisals used by lenders do come in at value, but that’s not the same thing as saying all appraisals will come in at a sale price, because they don’t. There are some deals that fall out of escrow, especially now. There are some deals that get shopped around to several lenders before they find one dumb enough or lazy enough to accept a faulty appraisal. It’s VERY common for loan originators to shop appraisers until they find one that’s cooperative and for there to be multiple appraisals performed on a single property until one of them comes in at the desired number.

As these lenders start taking losses, they are tightening down on their underwriting and that includes greater scrutiny of the appraisals they’re using. Unfortunately, they don’t get into this mode until after they’ve already made too many risky loans. It’s very frustrating for us.

[carlislematthew]

Bugs, thanks for the insight into your world! 🙂

[carlislematthew]

Bugs, thanks for the insight into your world! 🙂

[Author]

Posts