Tag Archives: value

Attack of the Killer Assessments

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It was a warm & lovely summer evening… Our hapless hero goes through his nightly ritual of sorting the junk mail from the bills when stumbles upon his annual “Official property value notice” post card from the King County Assessor.

Before I actually looked at the card, I thought, this shouldn’t be too bad. The local real estate market has cooled down a lot in the past year. My appraised value should be flat (maybe even lower). Zillow thinks my house’s value has fallen by about 10% this past year. Cyberhomes thinks it’s fallen by about 9%. Eppraisal & Realtor.com doesn’t give me a historical chart, but their value ranges are realistic.

So I gaze upon my white post card of doom and see the following numbers…

APPRAISED VALUE

OLD VALUE

NEW VALUE
LAND

123,000

230,000
BLDGS, ETC

413,000

360,000
TOTAL

536,000

590,000

I then think, WTF? Why in the world has my land value gone up nearly 90%? Why is my total property value 10% higher than last year, despite the fact we are in a down market? Is the assessor catching up to the market? Did the assessor really blow it this badly in years past? Is this a work of comedy & horror to rival the cult classic of good garden vegetables gone bad?

So, I call the King County Assessor’s office, and they explain to me that the market sells it as one piece, but the assessor must value the land as if it were vacant. After the land value is determined, they determine the total value of the property. Then the land’s worth is subtracted from the total and the remainder becomes the value of the house. They tell me where to go to view the area report for the Issaquah Highlands if I want find out more about how they determined my property’s value.

I read the report and discover that the base land value of single family home in the Issaquah Highlands is $240,000 and that the appraised land value for Area 75 is about 56.7% higher than it was last year. OK, but it still doesn’t explain why my land value is nearly 90% higher than last year. Unless weeds are considered a land improvement or the definition of a square foot has changed in the past year, I still have no idea how they came up with that figure.

I usually read the Seattle Times, not the Seattle PI, so I didn’t see this coming! However, it’s nice to know, I’m that the only one confused about the crazy assessments this year. I haven’t decided if I’m going to get out my pitchfork and storm the assessor’s office yet, but I do feel the need to understand how they came up with their numbers. I’m sure it doesn’t help that Probably & Statistics for Engineers, wasn’t among the classes at school that improved my GPA when I was going to Cal Poly.

And if any program managers from Zillow are reading this blog post – there has to be a cool new feature idea in this experience somewhere. Your web site is very useful helping me buy or sell a home, but I really have no idea if land values really are what the county says they are. Besides, I pay property taxes on a twice a year basis, but I’ve only sold a home once in the past 10 years. Every time somebody’s assessment changes you could get more site traffic. Why can’t generating a Z-assessment petition be as easy as getting a Z-estimate? Just saying, there’s an opportunity here…

Can you price your house at land plus structure?

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Larry asks: ” Isn’t it too simple a model to look at the sale price of a property by looking at the square feet of the structure? A property around Seattle, correct me if I’m wrong, has about half of its value in the land, and half in the structure. If real estate appreciates or depreciates. it’s the land that goes up and down, not the structure, right? I understand that $/sqf is an index that varies with property value, but this doesn’t seem to reflect the reality that it’s the land value that’s going up and down, which has only a loose relationship to house square footage.  Or is it just not workable to try to do a more complex calculation? My concern is that when you have an unusual situation with a large lot, and 2/3 of the value is in the land, this method will give erroneous results.”

Let’s deal with this sentence first and get it out of the way “A property around Seattle, correct me if I’m wrong, has about half of its value in the land, and half in the structure.”  No, not true.  One can not even begin to generalize, but a good rule of thumb for builders is that the new house will sell for 3X the lot value.  But that is ONLY if the lot was worth buying in the first place.

If your land has value separately from the structure, then your structure often doesn’t have any value. When your structure has value with the land on a combined basis, then the (extra) land can usually only add 10% more to that value unless the lot can be split into two or more lots.

If a builder might want the land, then yes, the value of the land is part of the valuation process.  If a builder wouldn’t want the land, then no, the land does not “value out” except as “an extra”.

Let’s take a regular neighborhood where the only buyers are those who are buying homes, and not builders who want the lot.  How can you tell?  Every house on the street is the same age, is a good clue.  No builder has ever bought a house torn it down and put a new home on that street, usually means no builder wants to do that. If a house burned down, well then of course the lot would have a value.  But if no one is interested in tearing the house down and putting a different house on it, then you don’t value the property by valuing the land first and then the structure. Most homes on the Eastside (housing developments) fall into that category, and any street in Seattle or Kirkland or Bellevue, considered to be a bad investment for new construction, falls into that category as well.

When no one would build a new house on the lot, you value a property based on comps alone, and the value of the land becomes irrelevant.  Most times the homes are on lots of about the same size.  A bigger lot vs. a smaller lot becomes “an extra”.  Sometimes extras add value and sometimes they don’t.  Too large of a lot often is viewed by potential buyers as “too much maintenance” and can actually detract from the value.  Often corner lots fall into the “more maintenance” category.  In these neighborhoods the large lot only values out IF it is SUBDIVIDABLE.  If the person buying it can turn the lot into two lots and put another house on that second lot and sell it, then yes, the extra land would be a factor in determining the asking price or offer price.

Before we leave this category of “no” you don’t separate the land when determining an asking or offer price, let’s talk about land as “an extra”.  The best rule of thumb for “extras” is they can’t in total equal more than 10% of the value of the property without the extras.  Say you have a house that comps out at $650,000.  You can’t get more than $65,000 more for that house because of extras, or $715,000.  Beyond that it just has too many extras.  Extras include, tennis courts, pools, extra land beyond the norm for the neighborhood, and to some extent new kitchens, new baths and any “added value” unless many in the neighborhood homes have also added these things and the comps have grown as a result.  If no one in the neighborhood has done ANY improvements since 1968, you can’t get double the price of everyone else’s house because you remodeled your house and have a pool and a bigger lot, etc.  That ONLY applies in areas where land is not separated from the structure in order to do a valuation.

So for all of the above, simple methods of price per square foot and adding and subtracting for some things here and there is the only method that works.

Let’s move on to where Larry is correct.

Larry, when the land does matter…then often it is ALL that matters, and the structure does not.

When it’s not all about square footage or value of structure, it often shifts to all about the land.

Example:  I had a buyer client who bought a 4-plex at 7th and Market in Ballard.  When he sold it two and a half years later (a year ago) the value of the 4-plex was roughly $720,000.  I listed the property at $850,000 because IF the buyer wanted to tear down the 4-plex and build townhomes, the value of the land was worth more than the value of the 4-Plex with the land under it.  It sold for $855,000 and five townhomes are being built on it as we speak.  People called who wanted to buy a 4-plex and it didn’t “pencil out” and a lot of agents thought I was nuts 🙂

When the value of the land exceeds the value of the home plus land, then the structure is “free”. This is true where builders are building and only WHEN builders are building.  If builders stop building for five years because the market is soft, then the value will go down to whatever an owner occupant will pay for it, and whomever buys it can live in it and sell it when the builders come back out looking for lots to build on.  We are entering a market like that and to some extent have been in that market for 10 months or so in some areas and in some locations.

So to answer your question, the reason it is or is not done the way you suggest is not because the “calculation is too complex”, it’s because it’s unnecessary.  A buyer isn’t going to pay you 3X the value of the neighbor’s lot plus the value of your structure, because the lot is 2/3rds bigger, unless it is subdividable into THREE lots. If it can only be subdivided into two lots, then they may pay you the value of your house based on comps and price per square foot, plus a portion of the value of the extra lot, not triple, even though it is 3X bigger. And if it can only be one lot, they may not want it at all, because it is too much maintenance and that can reduce the value overall.

The highest value of a lot is usually where the value of the structure is about nil AND a new house built on that lot will sell.  If you live on a street with no newer houses, if no one has ever wanted to build a new house on your street, the houses could end up at no value if no one wants to buy it as is and no builder wants to build on the lot.  Then it becomes your home for life…or a perpetual rental property 🙂

A woman approached me this Sunday.  She asked me what her property was worth.  The house was tiny and worth about $300,000 with a huge yard.  The lot was worth $300,000 without the house.  When I told her the lot was worth $300,000 she started talking about the house.  No!  You can’t add the value of the house to the value of the land.  No one is paying $300,000 for a big yard. They will only pay $300,000 if they are going to tear the house down.  Someone may buy it and live in it, but they will get the house for free if they do.  Maybe you can get $350,000 for it.  A $50,000 house is dirt cheap and someone may pay an extra $50,000 over lot value and live in the house.  But you can’t value the house at price per square foot and add it to the value of the lot.

You can sell it to a builder for lot value, or you can try to find an owner occupant who is willing to pay a little more than the builder will pay for the lot.  Those are your options.

Larry, my guess is your land is treated as “an extra” and adds 10% to the value IF a buyer views it as an extra vs. a shortcoming.  Today most people don’t want to spend all of their free time mowing the yard.  And you can only get 10% more for ALL extras on a combined basis. So if your house is already worth 10% more than your neighbor’s homes because you added a new kitchen…then the extra land is not of value as your exceeded you cap for “extras”.

The First in a Series of Fannie and Freddie Bailouts

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The rumors floated on Friday regarding Fannie and Freddie turned out to be true.  This first bailout proposal, released a few hours ago, has three parts.  I say “first” because there is no way that this is going to be enough to save what’s headed our way nor will this be the only time the government will need to “bailout” F&F.

The U.S. Treasury plans to seek approval for a temporary increase in the line of credit granted to Fannie Mae and Freddie Mac. They will also seek authority to buy equity in either company, and the Federal Reserve voted to allow the New York Fed to loan F&F money, if needed, giving F&F access to the Federal Reserve’s discount window.

The Wall Street Journal says the U.S. Treasury and The Federal Reserve are doing this mainly to boost confidence in F&F, not necessarily because any of this is needed, which to me seems to be a flat out lie.

The weekend move means that Fed Chairman Ben Bernanke, who has been steadily accumulating authority as the U.S. grapples with the financial crisis, will have even more power. The Treasury envisions the Fed working with the mortgage giants’ regulator to help prevent situations that could be a risk for the entire financial system. The move builds on Treasury’s broader goal of remaking financial regulation to give the Fed broader influence over financial-market stability.

I’m not sure if we’re suppose to be happy or scared at the thought of Ben Bernanke accumulating more power.  Maybe what’s really going on is some preemptive planning due to known or unknown possibilities that tomorrow’s auction of Freddie Mac debt doesn’t go well.

The Sunday move was designed in part to head off fears about Monday’s auction of Freddie Mac notes. While small, the planned sale had assumed an outsized importance as a test of investor confidence. Freddie should be able to find buyers for its three- and six-month notes, market analysts said. But there is a chance that some financial institutions and investors may demand higher-then-usual yields.

Similar Freddie and Fannie notes that are currently outstanding yield around 2.5%. If weak demand for Freddie’s auction leads to sharply higher yields on the new notes, that could trigger a selloff across a wide range of debt issued by the companies, some analysts said. But most said such a scenario is unlikely.

I’ve been glued to the web, the radio, and my phone since Friday evening reading, listening, and talking about this with friends and colleagues. If the federal government choses to provide (the implied) government backing for bondholders, then the United States increases our national debt by 5 trillion dollars which would have a profoundly negative impact on the value of the dollar and potentially bankrupting the U. S. economy. If the federal government chooses to do nothing and F&F are forced to mark their portfolio closer to market value and sell off assets to accumulate capital, then the true value of what’s in the bag becomes known. The secret will be out and now nobody will be interested in buying our Residential Mortgage Backed Securities, the market will know the true value of the loans currently being held by banks all over the U.S., mortgage lending slows way down, interest rates go way up, and the housing market goes cliff diving.

It seems to me that with this first bailout proposal (I am preparing for more bailouts as should you) everything is just going to be delayed as long as possible, taking us down further into a deeper recession step-by-step.

This bailout proposal is not enough. We have only just begun to see foreclosures rise. We still have the rest of 2008 to get through, when another round of pay option ARMS originated in 2006 begins to adjust, and through 2009 when the ARMs originated in 2007 adjust. Defaults and foreclosures are far from over.

There was a guy who predicted the demise of Fannie and Freddie back in 2006.  His proposal is that we nationalize Fannie and Freddie, quit pretending that they’re a private company, and restructure the debt, thereby forcing the bondholders to take a haircut.

Sniglet asks an interesting question (comment 123): “So what happens to the shareholders? Do any of these plans ensure that there is no dilution of equity if any form of bail-out were to occur? If the GSE shareholders aren’t protected then we could see a complete abandonment of the financial system by investors. Who will want to buy shares in financial firms if the government isn’t going to ensure their investments remain safe?”

From everything I’ve read over the weekend, the government likely will not protect shareholder equity.  Whether or not they should is up for debate.

Zillow your life – it's quite interesting

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I grew up at 4950 Lancaster Avenue My parents purchased it for $7,000 in 1957 or so. They made nothing on it and it is now the hole that you see between the buildings. But they raised seven children there. I lived there from age 3 to age 20 or so when my Dad died. I say it owes them nothing for housing nine people there for 17 years. The entire neighborhood that still exists, only values out at $15,000 max. That’s only a 50% return over a fifty year timeframe. Yes, there are “wrong” places to buy property! Always has been and always will be…ALL property does not go UP! (or down) in equal proportions.

In 1973 when my Dad died, my Mom moved to 6626 Haddington Street I remember her picking up the phone and leaving messages on the answering machines of every real estate office in town. She said I have $8,000. If you have a house to sell for $8,000, call me. According to Zillow, that house has now increased by 470%. My Mom was always a little smarter than my Dad…but my Dad was a cool dude 🙂 I don’t remember exactly what my Mom sold it for in 1980, but I do remember that she got at least double what she paid, had a non-taxable gain AND carried a portion of the price as a mortgage to the purchaser, with a double digit interest rate. That house owes her nothing either.

I moved out by the time she sold that house in 1980. In fact my Mom followed me to Northeast Philly. I rented. She bought a house for $18,000 on Fairdale now valued by Zillow at about $55,000. She sold it for $46,000 or so. It is now worth three times what she paid for it, but she took most of the equity out when she left. I bought this house in Kipling Place in 82 for $45,000 and sold in in 84 or $65,000. Zillow values it at $74,000 now, so looks like I pulled most of the equity out of that one. Me and my Mom seem to be doing pretty good pulling equity out and getting in and out at the right times.

Gotta go and I want to see if these Zillow links last. I’ll pick up in 1985 in another post.

How much for the bathroom?

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  1. [photopress:WWCG_logo_JPG.JPG,full,alignright]Frances Flynn Thorsen is raising 100K with the Web Women Giving Circle for CARE — a humanitarian organization that works with women to fight global poverty.
  2. There is no good follow up item because everything else is void of the meaning in comparison. I recommend (1) following the links in the first point, (2) donate some money and/or time and (3) repeating the process until it creates an infinite loop of giving.
  3. NAR has whole pages on the social benefits of homeownership. “Homeownership also provides many benefits to the family, children and the community, such as increased education for children, lower teen-age pregnancy rate and a higher lifetime annual income for children, as discussed in the following articles and studies.” Does anyone really believe homeownership causes these things? I don’t doubt that there is a correlation, but causality?
  4. Joshua Dorkin decides to one-up (make that 22-up) Cheryl, and lists his top 35 real estate blogs!
  5. Fliperati is searching for good investment blogs… (I am too!)
  6. How much is a bathroom worth? depends on how bad you gotta go…
  7. Today’s seemingly random plug for a decent person: Seattle Agent Ann Bergstrom.
  8. I noticed some traffic coming from a MarketWatch article on the value of agents despite the web. Looks like RCG is featured in the sidepanel as an area to keep up with real estate trends. Very cool!
  9. Tom has a different take than MarketWatch his comments on how the web is helping agents compete.. He quotes an article I found most interesting because people like Brad Inman and Greg Sterling comment on the type of real estate companies that will survive a soft housing market.
  10. Dean is asking what I (and you) think of 50-year mortgages? Personally, I despise acting desperate in anything I do, and 50-year mortgages reek of desperation.

Valuing Real Property in the Seattle Area

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[photopress:lega_emc2_l.jpg,thumb,alignright]My engineer friends are asking off screen for more details on a “scientific” approach to valuing property. You know, something they can put on an Excel Spreadsheet 🙂 Here’s a fairly tried and true method of valuation here in the Seattle Area. This method was so accurate a couple of years ago, that many agents were using this calculation to list property, and many owners knew it and were insisting on this method of valuation. That was before Zillow came out of course 🙂

I do have to caution readers from outside of the Seattle Area and the State of Washington, that this may not be reliable in other areas of the Country.

Here in the Seattle Area we have little niche markets everywhere. West Seattle, Downtown Kirkland, North Queen Anne, Ballard on the Freemont Side, Crown Hill, etc… Every pocket of value is self contained and is often called everywhere around the Country, the “snob” factor. I sometimes call it the “nosebleed” section, particularly in “view corridors”. Every place I have ever worked has had many, many imaginary lines that determine value pockets. Like the little sliver of area that has the zip code of the lower valued area, but the school district of the contiguous higher valued area.

OK, my engineer friends are getting bored with all the words. Here goes. When I first arrived in the Seattle Area and was working over by Green Lake, it was well known that everything was selling at 1.3 X assessed value. “Everything” meaning “all things being equal” and the “good-average home” without a view. Flippers were looking for anything and everything they could get their hands on that was selling at or below assessed value and using 1.3 or more x assesed value as their “worst case” after improvements value benchmark.

The beauty of this method is that you can extract the factor from each pocket neighborhood, and then apply the factor to the assessed value. I’m going to use the mls, but Galen and others, if you let me know of a site that has sold data that includes the inside photos of the sold property, let me know, so I can give the tutorial pointing to sites the Average Joe can access.

I just sold a property that closed at 1.54 times assessed value. Prior to that sale the top rate for that neighborhood was 1.33 times assessed value or less. Agents sometimes hold the market value down on the seller side of things by pre-ordaining the snob factor. Sometimes I can extend the imaginary line and drag the snob factor ratio of 1.5 to 1.6 times assessed value over to the nearby area that has not gotten a fair shake by the local agents for too long a time.

Take all of the solds in the same zone, as in nearby homes of like kind. Like kind meaning you compare view properties to other view properties and non view properties to other non view properties. You don’t have to consider square footage or number of bedrooms, as the assessed value will take that into consideration by going up and down to accommodate the inherent differences. This method is often more accurate than using the number of bedrooms and square footage reported in the mls.

Take the sold prices of each home divided by the assessed value of that home. Once you get the range of value for that area, say 1.4 – 1.48 times assessed value, you look at the assessed value of the home for sale and multiply it by that given area’s factor. If you pay more than that, then you know you are at the high end of the value range and might have to hold the property longer to come out whole. If you pay at or lower than the low end of the range, you can likely sell it whenever you want and make a profit.

View property will generally go for 1.6 times assessed value. The problem comes with flip projects. Flip projects and remodeled homes have jumped to 1.8 to 1.9 times assessed value. These homes, while they may be worth the price, must be evaluated with regard to the improvements of the basic systems and not just the comsmetic changes. If the roof is three layers and the wiring is original and the basement is yukky, but the kitchen has granite counters and the bathrooms are remodeled and the home is staged…be very careful. To garner 1.9 times assessed value, the home should be “like new” not only based on aesthetics, but all of the main components and systems of the home as well AND be a view property.

By calculating the 1.? times assessed value, you can determine how picky to be about the inspection, how much is too much to pay and where you are paying for “snob factor”. If nearby homes are selling for 1.4 times assessed value or even 1.9 times assessed value, and your offer is 1.8 times assessed value…that should tell you something you may need to know.

OK you data crunchers out there. Time for you to test your valuation using the x assessed value method and compare it to your Zestimate. Let’s hear what you come up with. This should work in any part of the Country that does not re-assess based on sale price, such as California.

Valuing Homes for Buyers

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[photopress:dartboard.jpg,thumb,alignright]To some extent buyers, especially first time buyers, encourage receiving inaccurate information with regard to value and other home details, by asking the right questions at the wrong time.

Sellers understand that it takes time to work on a valuation. Rarely does a seller call and say, “I live at 123 Great Street, what is the value of my house?”. I’d venture to say that no seller expects an agent to know the value of their house on the spot, nor would they want a two second answer. Consequently, valuing the home properly for a seller, within the framework of the seller’s expectations of the time it takes to give an accurate answer, produces fairly good results most of the time.

Buyers on the other hand encourage shoot from the hip responses fairly continuously. The normal process should be that the buyer view the properties selected by both them and the agent. The buyer should select one or more that they might like to purchase, and then ask the agent to take some time to evaluate and value those properties that they like best.

But that is not normally how a buyer operates. Often they ask all kinds of questions, as if an agent knows every property they are showing in great detail and with a large degree of accuracy. Certainly the agent can, and will if you encourage it properly, do all of the work necessary to know every property. But buyers seem to expect an agent to spend this kind of time on every property being shown before the agent shows the property and before the agent knows if the buyer is even interested in the property. By and large an agent is not going to study every single property he shows in great detail, as it would be a waste of time, especially for the ones the buyer hates at first glance.

When you first look at property, you should simply be advising the agent if you like it or do not like it. Then you should ask the agent to dig into only the properties you like and might buy, and find out as much as possible about those and also value only those. For as long as I can remember, many buyers will go from house to house asking questions like, what do you think of the price? Is it worth it? What is the age of the house, have they had any offers, etc… By asking a lot of questions about every single house, even the houses you hate, you encourage the agent to answer off the top of his head. This starts the whole relationship off on a bad foot. The agent doesn’t want to say I don’t know to all of these questions, but it is not reasonable to expect an agent to know a lot about every single property being shown. Next thing you know the agent is giving sloppy and often inaccurate answers to avoid saying I don’t know to all of the questions.

Asking your agent if the asking price is reasonable, is of course a very good question. But just as the seller gives the agent hours and sometimes days to come up with that answer, don’t expect an answer on the spot for every single house you are shown whether you like it or not. If you do ask the question, and the agent answers immediately without taking at least an hour or two to research the answer to that question, don’t be surprised if the answer you do get on the spot is a knee jerk, inaccurate answer.

By encouraging the agent to answer inaccurately, you set up a relationship where the agent continues to give you shoot from the hip responses even on the property you eventually purchase. Look at property from your perspective. Do you like it or not. Then ask the agent to research the properties you like. This will insure a more accurate valuation and more accurate facts. First the agent calls the listing agent to see if he has any offers and if so, what time are the offers being presented. If you have a few hours to get your offer in, and you usually do, set an appointment for a couple of hours later and ask the agent to research the properties in detail before you sit down to discuss the price and terms of the offer.

Often it is not a good idea to ask ALL of your questions before making an offer. If the buyer’s agent calls the listing agent and asks tons of questions like How old is the roof, Did they ever have water in the basement, etc., that buyer will not be given good consideration if there are multiple offers. Many questions, especially negative toned questions, should be asked after you “tie up the property” and most of them should be asked of the home inspector during the home inspection.

Sorry, I seem to have covered two topics in one there. Just following the normal sequence of errors buyers often make when viewing property and prior to making an offer. Often the seller is more negotiable with a buyer who loves their house, than one who is “kicking tires” from the getgo. Timing is everything. You should ask your agent all of the questions you may have and he should answer all of the questions including the ones you didn’t ask. Leaving the agent room to apply proper timing to obtain the correct answers, without alarming the seller or seller’s agent at the wrong time, can make a huge difference in whether you get the property and how much you pay for it. Once deemed a “difficult or squirrely” buyer by the listing agent, you will often have to jump through more hoops to get the property, if you can get it at all. Give your buyer’s agent enough room to play everything to your best advantage and don’t look at him like he is stupid, if he doesn’t know every answer to every one of your questions “off the top of his head”.

How to Value a House

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[photopress:bullseye.jpg,thumb,alignright]While “market value” and “appraised value” are not always one in the same, calculating a home’s value is both a science and an art, whether the value is being ascertained by an appraiser or a real estate professional.

The purpose of the valuation can actually have some bearing on the value itself. If you have a client who is purchasing a property to remodel and flip it, the value for that client has to take into consideration the cost of the improvements and the eventual resale value. Consequently, one has to be involved in both knowing, and making recommendations with regard to, which improvements will produce the greatest return, before the client makes an offer on the property.

Just as a lender has to take into consideration many factors when recommending various loan programs, a real estate professional has to take into account many factors before determining a home’s fair market value. When you are representing a seller, you have to lean towards the high end of the value range. An appraiser would call this “highest and best use”. A real estate agent would call that “if purchased by a person of the best buyer profile. For example, someone purchasing a property to live in it, will pay more for a property than a builder who is going to tear it down or an investor who is going to remodel and flip it.

When you represent the buyer, you have to consider the home’s resale value and any money left on the table by the seller. A seller leaves money on the table by various means that are generally not reflected in the asking price itself. I use this test when valuing a property for the buyer: If they called me in a very short period of time to sell it because they decided to move back from where they came from, could I get them out whole, meaning purchase price plus the costs of purchase and sale. By being a “listing agent” in your mind when representing a buyer, an agent will perform a better valuation than if they are just considering how much the buyer wants or likes the property. Of course, the buyer can always choose to pay more than that value and say “I don’t plan to sell it as I plan to live here for a very long time”, but they will at least know how much they are overpaying for the privelege of getting the home. Very important when the buyer is trying to determine the cap on their escalation clause.

Let’s go to the science part of the valuation. Some houses have what are called “true comps”. This would be most true in a very large community of newer homes. I am not going to spend a lot of time on valuing property with “true comps” because here in the Seattle Area, there are very, very few houses that can be valued by those normal methods. In fact the only ones I have been able to value by normal methods have been newer townhomes. Proximity to the subject property is not always relevant, especially in Seattle vs. Eastside. The comps have to be ones built in the same “finish period” and have the same “buyer profile”. For instance, a property built in 1991 may have white cabinets, gray countertops, white appliances and 4″ white tile in the baths. Using that as a comp to a property built in 1995 with granite tile countertops vs. gray laminate and maple cabinets vs. white cabinets, will not produce a reliable end result. Nor would using a comp with granite slab counters, stainless appliances and hardwood floors.

For the most part, we are lucky to find one recent sale that is quite similar to the property we are valuing. I call that the home’s “significant other”. An appraiser will still use three solds, whether similar or not, to ascertain value. A real estate agent will pull the significant other from the solds and move to properties that are pending and STI and ACTIVE in determining what a buyer will pay or should pay or what a seller should set as an asking price.

A few recent examples. When I valued a property for a seller back in May, I had comps of $325,000, $327,000 and $337,000. I priced the townhome at $350,000 and it sold for $350,000. The upward momentum of the marketplace from May was a significant factor. For this particular townhome, best buyer profile was someone who was relocating to the area and the buyer was in fact relocated here for her new job.

When I recently valued a newer townhome at this time of year, I needed to be more “right on target” as we are in a sluggish month of August aka “agents take vacation time month” and running into September which generally has two weeks out of four that are hot. The buyer profile of this particular townhome was a single person who would take in roommates. It did sell quickly and at full price to a student taking in two roommates. The danger on this one was pricing against new construction. You have to be as high as you can without encroaching on the price at which a buyer can get a brand new townhome nearby. I could not use the comps at all when valuing that property, because the subject property was built in 2001 and the comps were 2003 and new. The interior finishes were not comparable and could not compete, so to get a fast full price was their best chance of not having to bargain down to a level below the highest achievable price.

Let’s flip to buyers and how I value a property for a buyer vs. a seller. I’ll have to make this another article as the Vicodin for the root canal is kicking in and I’m going to barf.

Zillow vs. “average” agent

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When I wrote my “Baby Takes a Bow” piece which took about 30 seconds, I knew I was opening Pandora’s Box, and would have to back up my one liners with some extensive writing on each topic outlined therein.

My definition of Pandora’s Box is the one one that attributes “the box” to a “woman’s womb” from which new life springs forth. While I do not necessarily agree with Inman’s new three part series on negating the mls offering started yesterday, or all of David Barry’s undertakings around the country, clearly I am not the only one trying to pry open Pandora’s Box. The box WILL be opened! Whether the DOJ or David Barry choose in the end to take the ultimate credit, truth is, it is just simply time for the box to be broken open by everyone at once.

If we all take out our respective crowbars, the box will open. Who takes credit for having opened it, and clearly David Eraker and those who came before him will deserve some of that credit as well, who takes the ultimate credit is irrelevant. In fact the DOJ is my best hope for getting the credit, so that the “new life that springs forth” will be on a national scale as only the DOJ can do best.

In this quote from my most recent beginnings of a very long explanation, you will quickly see just WHO Zillow can replace, which by current accounts and statistics may be up to 90% of the industry as it exists today.

“If you stand up from the computer with the value in your hand before you go to the house, and you stand by that value after you arrive at the house, because the computer “SET” the value…you are giving the seller the equivalent of a Zillow produced valuation…which is FREE. Any agent who thinks a computer spits out a home “value” via a CMA Program, is easily replaced by Zillow.”

To some extent, those who wrote those great CMA programs, like IRIS/Lightning and Top Producer and way back to Coldwell Banker’s very first CMA software which predated them all, are responsible for agents believing that a computer can value a home.

To a greater extent large brokers, and local mls classes, that mislead new agents into thinking they can “value a home” on day ONE after they receive their license, by using these programs, are even more responsible for this thinking.

When the Pareto Principal changes from an 80/20 rule to a 90/10 rule, as was told to me in Real Estate Broker Classes, with only 10% of agents being competent, then it is time. It is time for Pandora’s Box to be opened. It is time to stop that snowball from rolling down the hill, it is time to stop that train that doesn’t seem to have brakes. It is time to roll back the clock and begin again.

Contrary to Inman’s new series, we do not have to roll the clock back 35 years to the beginnings of the mls. We only have to back up to the day that buyers were supposed to become “1st class citizens”, and begin anew from that point. Because an agent who cannot value a home for a seller, cannot with any sense of credibility, value one for a buyer either.