In most parts of the country, real estate appraiser’s main source of data is the multiple listing service. (MLS) We use it to find homes that are comparable to the ones we are valuing, to determine what buyers are paying for similar homes. We also use the MLS to analyze the market trends and to make market-based adjustments for things such as changes in sales prices, as well as features of a home that have a major impact on market value, like finished square footage, bedroom, and bathroom count, lot size and so on.
You no doubt have heard of the saying, “junk in, junk out”. Our opinions and analysis are only as good as the data we have to analyze. The more accurate the data, the more supportable our conclusions are.
Real estate agents are typically the individuals who provide information in the MLS. It is incredibly important that the information they input into the MLS is accurate. Let’s talk about three areas of a listing that, when completed accurately, can help appraisers to develop more supportable opinions of value.
NO BLANK FIELDS
At times, when searching for comparable sales that have sold in the MLS, I may miss a very comparable sale because a field was left blank. For instance, say I am appraising a home with one thousand square feet of above grade living area. I may run a search for homes with between eight hundred to fourteen hundred square feet. There may be a very comparable home with similar square footage that sold recently. However, because the square footage field in the MLS was left blank, it may not show in my search? An appraiser may miss that sale through no fault of their own. The same could be true with regards to bedrooms, bathrooms, garage size, or other features of a home that add significant value.
The more information the MLS listing offers on a home, the more useful the data is at helping appraisers to develop a supportable opinion of the value of a home being appraised.
In addition to not leaving fields blank, another way agents can help appraisers to develop more supportable opinions of value is when it comes to accuracy. Take finished square footage for instance. If an agent includes the square footage of a finished basement in what they report as finished above-ground square footage, this can have a negative impact on the appraisal process.
For one thing, the appraiser may completely miss a truly comparable sale, because the reported square footage is so vastly different from what the home really offers. It also waters down the price per square foot of a property, which ironically, can also have a negative impact on the agent’s analysis.
For instance, if a one thousand square foot home sold for two hundred thousand dollars, the price per square foot would be $200. But what if half the basement is finished, and the agent includes this square footage in their analysis? Say the finished basement offers an additional five hundred square feet? If the agent were to base their price per square foot on fifteen hundred square feet, their price per square foot would be around $133, which is considerably less! Including finished basement square footage does not really help anyone in the long run.
As I noted at the beginning of this post, appraisers also rely on data from the MLS for analyzing market trends and for developing opinions with regards to what the market is paying for things like gross living area, bedrooms, bathrooms, garage spaces, and lot size. Typically, we use statistical tools to measure these differences. So, if the data in the MLS is not accurate, it will lead to less supportable opinions and analysis on the part of the appraiser, through no fault of the appraiser.
We do our best to scrub the data we use, removing data points that are missing or clearly inaccurate. However, when pulling hundreds of sales, it is impossible to research every sale to ensure accuracy. We rely on agents to do their part to provide accurate information in their listings, which most do.
In my last article, I discussed how the square footage of many homes, as reported in public records, is inaccurate. This can very easily lead to appraiser’s opinions of value being less supportable, through no fault of their home. However, most agents are still using data from public records as their source of a home’s square footage.
I encourage agents to make sure that the square footage they report in their listing is accurate. It will help everyone! Agents rely on a CMA to develop an opinion of the price a home should be listed for. If their CMA is based upon inaccurate data, it will lead to an unsupportable list price. Inaccurate data impacts the entire process negatively for both agents and appraisers!
LEAVE INTERIOR PHOTOS IN, IF POSSIBLE
Another way that agents can help appraisers to develop more supportable opinions of value, is by leaving the interior photos in after the sale has closed. There is a city in my area where homeowners have demanded that the interior photos of the homes listed, be removed after closing. An agent may not have much of a choice if the homeowner demands it. However, what the homeowner and/or agent may not realize is that appraisers rely heavily upon interior photos. Why?
For one thing, interpretations of what it means to remodel, update, or even the description of finishes can differ. I have read some comments in the MLS, that state that a home had been completely renovated. However, when I looked at the photos, the home may have not been renovated. Perhaps it was updated nicely, but not to the degree of a full renovation. On the other hand, there have been homes that have been very nicely renovated, but the interior photos have been removed, and the MLS comments don’t offer much of a description of the renovations. That might lead an appraiser to assume that the home does not offer major renovations when in reality it does. Either way can lead to less supportable conclusions, through no fault of the appraiser.
Appraisers also use interior photos to get an idea of the finishes and other features of a home that can impact value. If a picture is worth a thousand words, leaving interior photos of a home in the MLS after it closes can really help appraisers to assess the market’s reaction to differences in condition, upgrades, finishes, as well as other features, more accurately. Of course, we also try to verify this information by calling the listing agent. However, pictures can really be beneficial.
Hopefully, you found this information to be helpful. By the way, I would like to thank all the hard-working agents out there who do provide accurate information in their listings. Most do!
This post is just a friendly reminder of how important it is to have complete and accurate data listings in the MLS, not just for appraisers, but for everyone who relies upon data in the MLS!
Providing as much information as possible, and as accurately as possible, will go a long way in helping appraisers to provide more supportable opinions of value. And that is a win for everyone!
This week I leave you with a funny video my colleague Glen Kangas from GA Appraisals put together.
Have a great long weekend!
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Here are some links to other articles I’ve enjoyed recently! I hope you will also…
Wondering What The Housing Landing Looks Like- Housing Notes by Jonathan Miller
Fires, multiple offers, & new flooring – Sacramento Appraisal Blog
Is My Home Appraisal Confidential? – Birmingham Appraisal Blog
What should appraisers look for in a sales contract? – APPRAISAL TODAY
More on Highest and Best Use!? Really?! – The Appraiser’s Advocate Podcast with Tim Andersen
Content is King! – Building A Six-Figure Business With Content! – The Real Value Podcast with Blaine Feyen
Content is King – Part 2 – The Real Value Podcast with Blaine Feyen