A Dangerous Market for Valuation Errors

This is the most dangerous market for valuations.

Years ago I wrote 2 blogs titled, Zillow, is for Idiots , which held up well. It shows how “off” AVM (automatic valuation models) can be. People want desperately to “push a button” with the immediate answer so if you notice, we put both the Zestimate and the RPR (more accurate in my opinion) on every home you see when browsing our website.

Today, though we are in a situation that is much more volatile regarding figuring out the true valuation of a home.

CMAs are always a combination of logic, art and the street. You must look at 3-6 months of past sales combined with adding/subtracting for square footage, bedrooms, baths, room, construction type, pool, view, year built, improvements, etc. The art form is a mixture how well something is put together (the aesthetics) and what is happening at street level. Light that is coming in from a well-designed floor plan or the proper design of kitchen colors and materials is art form. The street level part is what an agent is seeing on the ground at real time. A true appraiser will not consider what is happening at street level at all. They are very much like that old Dragnet serious. Just the facts “Ma’am”! The problem with that is that sold stats in this market are beyond old. A home that went under contract in January and closes 90 days later does not tell you what the real market valuation is today. In this market, values might have gone up 10% + in the past 90 days.

Consumers believe its easy to sell right now and while that is true, Sellers can leave a monumental amount of money on the table if they do not evaluate properly. I know someone who sold quickly and thought they did great and sold 15% short. On a $800,000 sale, they left at least $100,000 on the table and thought they did great. You can’t say something to someone once they do that but you must maximize and treat your home sale seriously and cautiously.

People want immediate answers today. They want to go to Zillow and get a Zestimate or some other automated AVM. There has always been a problem with these in that none of these know if you have remodeled or put a new roof on or replaced the windows with impact glass. A homeowner could put in $100,000 and Zillow would not have a clue as they never came to the house. It is just a feel-good button. To make matters worse, the market is changing so quickly, that if there is not a remodeled cherry within a 6–9-month period, than these types of automatic valuations could be off 25-30%. If a Seller is relying on this, then a fast sale which a Seller thinks is great, could be the dumbest financial situation one could make.

Check out all Current South Florida Market Statistics Here! Find Days on Market, Closed Sales, Active Inventory, Median Sales Price, Mortgage Rates, and more for Palm Beach, Martin, St. Lucie, Broward, Indian River, and Miami-Dade!

Jeff Lichtenstein is owner and broker of Echo Fine Properties, a luxury real estate brokerage selling real estate in Jupiter and homes in Palm Beach Gardens, Florida. He has 20 years of real estate experience, has closed over a 1,000 transactions, and manages over 50 agents in a non-traditional model of real estate that mimics a traditional business model. Some publications he has been quoted in.

Feel free to ask him a question directly at [email protected].