Have you ever heard of an autostereogram? It is a picture which allows some people to see a 3D image by focusing on 2D patterns. In the mid 90’s these kinds of pictures were often called “Magic Eye” pictures.
There were some very specific steps that a person had to take to be able to see the hidden 3D image. See the video for instructions on how to do it.
Some people, hard as they tried, just cannot see the image. In these kinds of pictures, a person has to know where to focus, how to focus, and for how long to focus. When it comes to appraising a home, there are some similarities.
There is more real estate data than ever before that is available to the public. However, just glancing at the data is not enough to come up with an accurate opinion of value, just as glancing at one of these images is not enough to see the hidden 3D image. There are some very important steps that appraisers have to follow in order to see the true market value of a home. It really comes down to the difference in forming an opinion based upon just a glance at the data vs. making a real analysis of it.
A PROPER ANALYSIS MAKES A DIFFERENCE
I recently appraised a property for a purchase. The purchase price was around $100K. In searching for comparable sales, I found sales in the neighborhood that were similar in style, gross living area and age selling for around $100K. At a glance, it seemed like the contract price was in line with the market value. However, here are some additional things I found when making a closer examination.
The property being appraised had an unfinished basement, a one car garage, only one bathroom and was updated, but not remodeled. Additionally, the lot size of the subject property was smaller than many of the comparable sales. After applying the adjustments (which was derived from data I pulled from sales in the subject neighborhood), my opinion of value was in the low $80’s.
Needless to say, the listing agent sent sales that they thought supported a higher value, to the lender. The lender then forwarded them on to me to analyze. Of the four sales they sent me, two were already used in my report. (Perhaps someone was just glancing at my report instead of analyzing it) The other two sales had been remodeled to a considerably superior degree. Once the adjustments were applied, they also supported my original opinion of value.
Very often, when someone contests my value opinion and provide sales for me to analyze, this happens. It seems like some glance at a few sales that appear to be comparable, then look at what they sold for and, voila, they have established the market value! If only it were that simple. Oddly, some real estate professionals have told me in conversation that “appraising is easy”. Sadly, the last real estate agent that said that to me, had listed a home they were selling higher than market value, because they had not taken into consideration differences in quality between the home they were selling vs. other sales in the area that they thought to be comparable. And yes, the appraised value was lower than the contract price.
My point is not to disparage anyone. Honestly, if I was not an appraiser, I’m sure I would be doing the same thing. The point of this article is to make the point that establishing a realistic and supportable market value cannot usually be accomplished by a simple glance of the data (sales)! A much deeper analysis is necessary.
PEOPLE SEE THINGS DIFFERENTLY
Different people see things differently. Two people looking at the same thing may come up with different conclusions. There are many reasons for this. This video demonstrates this point nicely.
When you viewed this video, one interpretation was more obvious to you than the other . However, once the descriptions (more data) were provided, you no doubt were able to see both viewpoints. This can be true in valuations. Once something is explained in a different light, a different picture may develop.
Just like there are steps needed to successfully see that hidden 3D image, very specific steps are needed to perform a reliable appraisal. And, just as some people can’t see the hidden image no matter how hard they try, not everyone has the skills to be able to accurately analyze real estate data.
So, if you find yourself needing to establish the market value of a home, don’t just rely on a simple glance of the data. Take the time to analyze the information properly. And if you are not able to see the picture of the market value of your home, or the home you are listing, then hire a real estate appraiser to help you. In the end, it will save you time and money.
MONTHLY MARKET UPDATE
Speaking of glancing at data or analyzing it, here is my monthly County Market Report for August. Compare the stats from August of this year in comparison to August of last year. Feel free to share this report with anyone you wish! It’s designed for you!
Thanks, as always, for reading my article!
Here are some other articles and videos I enjoyed this week! I hope you will also.
The Pie v. Cake Debate As The Ultimate Housing Market Analogy – Housing Notes by Jonathan Miller
Is the public trusting Zillow too much? – Sacramento Appraisal Blog
To be, or Not to Be? That is the question! – The Real Value Podcast
RAC Conference Coverage 100% Appraisers at RAC! – Voice of Appraisal with Phil Crawford
Appraiser Regard to Green Energy – The Appraiser Coach
Can You Believe That? Part 4 – George Dell’s Analogue Blog
How Healthy Is The Birmingham Real Estate Market? – Birmingham Appraisal Blog
Ann Arbor Market Snapshot by Price – Ann Arbor Appraisal