I'm re-blogging this post of Howard and Susan Meyers of The Hudson Company, Winnetka and North Shore, for many reasons ...
First, appraisals are a huge and growing issue within mortgage processing and getting deals approved. The more educated buyers, agents, and lenders are regarding the appraising process, the better.
This is an extremely well-written example of the housing market as it exists in Chicagoland. I'm sure it's representative of other regions of the country, as well. The post spells out some of the "reasoning" powers that appraisers must call into play when performing their job.
And lastly ... I'm a former appraiser. Although I loved doing appraisals in general, I always found the older ... non-cookie-cutter subdivision homes ... the most enjoyable to appraise. They were more of a challenge for me to perform and write well and I liked that especially as I was in the profession longer. You really had to be much more engaged in the process.
Howard and Susan Meyer point out the fact that some homes demand more in the way of determining value. More than a Zestimate or computer can live up to. It takes an agent that knows the housing in the market they are selling to set a realistic sales price. It demands the same of an appraiser when arriving at a value. Real thought. Education. Experienced expertise.
Again, I thought this post very important and extremely worthy of passing on for thought, education, and action. I urge homebuyers to work with real estate professionals on every level that understand the appraising process thoroughly ...
Zestimate/Shmestimate Comparing Apples to Oranges
We’ve discussed this before, but it keeps coming back like a bad penny.
Much of suburban America is made up of subdivisions. In these communities, which were generally built by a single developer, utilizing anywhere from one to a half dozen different models, there is a consistency of living spaces. Some may have upgrades. Others may have remodeled kitchens or baths. Still others may be closer to parks, schools playgrounds or public transportation.
In this “subdivision environment”, and in other areas of homogeneous housing, the Zestimate provided by Zillow may have some level of validity. However, it only works when comparing apples to apples. This is because it utilizes only objective information in determining value. This may include total square feet, lot size, number of bedrooms and baths etc. If all other factors are equal, this allows for some level of comparison.
In the older suburbs of America, as well as in many urban areas, this type of housing does not exist. The single family residences were developed by individual builders over years and even decades. Sometimes the older homes have been torn down and replaced by newer residences. If the local zoning was enforced, hopefully there is some level of consistency in lot size.
In these areas, housing is a varied patchwork of style and age.
Of course, in these areas, the basic objective information plays some role in determining value...but generally the most important factors are the more subjective data which do not come into play via a computerized analysis. This criteria may include location, age, upgrades (which may or may not be correctly noted in the property tax records), style, curb appeal etc.
In Winnetka, Wilmette, Glencoe, Northfield and most of the North Shore area, the Zestimate will generally come in at a price that is significantly below the asking price and the genuinely correct market value. Here we are comparing applesto oranges.
This is particularly the case for higher end properties and the reason is because there is a very large range of sales prices in the local market and the higher end properties are being comped to sales of lower end properties which share some but not many characteristics. An example of this is a house on the lakefront (which is a super premium location) being comped to a house which abuts the railroad tracks, but is only four blocks away. Often this is reflected in a Zestimate that is several hundred thousand dollars off base.
Frequently, we hear buyers say that they “really like the house, but wouldn’t consider paying anywhere near the asking price” after viewing the much lower "Zestimate".
We embrace educated buyers. We want them to have access to all the available information so they can make a well informed decision about value.....But please,do not include the Zestimate when assembling your buying information on Chicago’s North Shore.
Susan and Howard Meyers
The Hudson Company
851 Spruce Street
Winnetka, Illinois 60093