As previously discussed, valuation services like Zillow (or Redfin, Trulia, etc.) are an unreliable source of home value information. To summarize: these services rely on AVMs, mathematical models that generate estimates mostly from comparable sales data. Limitations in the model and data—especially in non-disclosure states like Texas, where sales prices are not reported—compromise the accuracy of those assessments. With a variable and sometimes extreme margin of error, such services should not be the basis for significant financial decisions. In states that do provide such disclosures, this is not an issue, but if you’re looking in Austin, it is. Make sure to check your states provisions.

Inaccurate AVMs are prevalent and easily accessible, often the first source of information encountered, so prospective sellers are putting their trust in bad data. This situation is detrimental to the home sales process. Understandably, sellers want to have a realistic estimate of their property's value, but establishing a listing price requires local market knowledge and data unavailable to third party providers. Where can sellers get the information they need?

One option is to have the property appraised by a certified or licensed appraiser. In general, appraisers work for the lenders once a property is under contract, but sellers may hire an appraiser to help determine sales price. This should be done prior to going on the market. Appraisals are used to value collateral in real estate transaction and for the majority of purchase money transactions involving a loan. If the transaction is federally related, or if the lender determines the methodology used for the transaction, an appraisal may be required. Appraisal is a reliable method but, because it can be expensive, may not be the best choice.

The second option is a Comparable Market Analysis (CMA), an estimate of the probable selling price of a property that can only be provided by licensed real estate agents. The purpose of a CMA is to provide an accurate starting point for pricing properties by establishing for a property a range of value that reflects market conditions at the time and place of the desired transaction. A CMA provides data and reasoning so that sellers can see the value of their home and why that value is accurate. This is typically a complimentary service performed as part of property analysis and carries no obligation.

According to the National Association of REALTORS® Standards of Practice, the agent providing the CMA must 1. be knowledgeable about the type of property being evaluated; 2. have access to the information and resources necessary to formulate an accurate opinion; and 3. be familiar with the area where the subject property is located. It is recommended sellers interview at least three agents, who should provide a fact-based, objective assessment of the property. Really, the process of selling a home should always include visiting several agents, to ensure sellers find an agent qualified and suited to their needs. Getting a CMA is part of this process and a good opportunity to meet and evaluate different agents before making a choice. Being free of cost and commitment, there is no downside to this method.

With the help of a knowledgeable professional, sellers can be confident that their information is accurate and will be useful in the process going forward.

Posted by Monte Davis on
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