Everyone knows this is the most important consideration affecting value in real estate. But there is even more to it than that. The most basic principle for understanding and evaluating all real estate is this: All Real Estate is Local. It is very, very local, right down to the individual property.
What About Automated Online Valuations?
Many websites offer an automated valuation of your property. Although this is an option in the Ethernet world, it is just a hook to get you drawn in; there is no such thing as an accurate automated valuation in the real world!
Online valuations access county sales and tax assessment data, and sometimes multiple listing data. There is no consideration of the actual market conditions at the time of sale (which can vary significantly), the specific neighborhood or area, the type of property, or the condition of the house and property. Is it a fixer, a bulldozer, dated, recently remodeled, high-end construction, or a do-it-yourselfer? What about the schools, view, proximity to traffic, trains, industry, noise, or anticipated detrimental changes to come (and the list can be long)? Tax assessments rarely match actual market value.
The only way to properly value a property:
- Walk the property and see the home in person. It takes ‘boots on the ground’ reconnaissance to make smart decisions. One cannot even begin the research until this has been accomplished.
- Know the comparable areas. Two towns located in the same county will have considerable differences in value because of numerous tangible and intangible differences. This goes for neighborhoods as well.
- Compare the property with genuine comparable properties. Two statistically identical homes will be dramatically different in price because of location alone, and there are always other considerations as well.
- Compare sales which occurred in the same market conditions. Appraisers prefer ‘comps’ to be no older than 3 months, almost never more than 6 months. It does little good to see properties which sold last year unless you have a depth of knowledge to properly extrapolate value.
- Compare with actual sales in the free market. Distressed sales which are the result of foreclosure, or closed sales within a family, do not reflect the actual market price. They distort the value and need to be eliminated from consideration.
Many of the problems we now suffer from (the sub-prime mortgage mess, rabid speculation and non-existent standards) are tied to the fact that in-person appraisals were not performed. Instead, lenders relied on automated valuations to support their loan programs. It is almost impossible to have a monolithic valuation for every area. The diversity is amazing. Can a website evaluate that?
