Home appraisal sites track decline

A foreclosed house for sale in Los Angeles.


Vigeland: I really don't want to spend the next few moments telling you about the latest rash of housing statistics. It's still a horror show. Enough said.

So let's talk about dinner parties. The ones where we used to jabber on about how much we paid for our homes and how much those online Web sites said they were now worth. Not what we talk about anymore, is it? And yet, Zillow, Trulia, and Cyberhomes.com still get our eyeballs. But we wondered what, exactly, they're good for.

Let's put that question to Nic Retsinas, Director of Harvard's Joint Center for Housing Studies. Thanks for joining us.

Retsinas: Nice to be with you.

Vigeland: What role do these appraisal Web sites play in kind of the overall housing market?

Retsinas: Well, they give people a sense of what the value of their home is. Lest we forget, for most people, their net worth is concentrated in their home. And people of course are concerned about seeing an erosion in the value of their home, which they see as the principle part of their net worth.

Vigeland: And that really is the opposite of what we were using it for three or four years ago, which is to watch how our home values were going up and up and up, right?

Retsinas: In the past, it really was used to give some substance to bragging rights, "Gee, look how much my home has appreciated in value. Look how much richer, I am, how much richer I feel." Unlike the stock market, where every day you know what the clearing price is of a share of Apple stock or IBM stock, a home isn't as nearly as liquid an asset. And this is really a way to overcome that illiquidity.

Vigeland: I really have to question how they come up with these numbers, because I went on a couple of Web sites and looked at my own home. There was a $300,000 difference between what cyberhomes.com said my home was worth and what Zillow said it was worth. Do I just need to stop looking at this? What is really the point of these Web sites anyway?

Retsinas: You have to ask yourself why you're looking at it, because until you're ready to sell your home, it really has no value, until you find a willing buyer.

Vigeland: Well that's true, and let me tell you why I was, it's because we were thinking about refinancing. And I wanted to get some idea of what my home might be worth, before I paid for an appraisal. But this really doesn't tell me anything.

Retsinas: It will give you an idea. The problem is it'll give you a variety of ideas. All of these Web sites used data from sales in the general area where your home is. Some of them will apply a sort of rates of general market appreciation, some of them will factor in information about the economy.

The models are not particularly transparent, so it's hard to say specifically what they look at. But they do not take into account whether your home is a better home, better kept or worst kept, than your neighbor's home.

Vigeland: I guess mine just shocked me. $300,000, I could buy another home with that difference.

Retsinas: I mean we have these Web sites in other sectors too. The so-called "Blue Book" in terms of value of a used car, gives you some sense of what your used car is worth, but it doesn't say that's the price you'll get if you bring it to a dealer. It doesn't say that's the price you'll get if you sell it to a neighbor. It is an approximation. I think the real irony of all these sites is this obsession and this focus on the home as a financial asset and purely a financial asset. And now in a sense, we're paying a price for that.

Vigeland: So what do you think the popularity of these sites say about the way we do think about property?

Retsinas: People are trying to translate the macro-information that they read and listen to everyday about what's happening in the economy, what's happening in the house market. And they want to ask that question, "What about me? What about my home?"

But it can influence behavior. For example, if you looked at these sights and your home was worth a lot more than you thought it might've been from listening to the headlines, you might say, "Well, I guess I'm a little richer than I thought I was. I guess I could be a little a freer with my spending than I thought I could be." Or vice versa. And it's the behavior, particularly the consumer behavior, that ultimately undergirds our economy.

Vigeland:Nic Retsinas is the director of Harvard's Joint Center for Housing Studies. Thanks as always.

Retsinas:Thank you.

About the author

Tess Vigeland is the host of Marketplace Money, where she takes a deep dive into why we do what we do with our money.
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Hi Jon Kundtz,
Thanks for taking the time to comment with your findings. I want to look closer at this issue and see if we can help. I noticed you left the address of the home in OH that you search. In your message, I also noticed that you quoted the home as 13,000 sq feet with a constant stream of home improvements. However we have the home as being 9,435 Sq feet…and may not account for these improvements. This is a great example of why we built the “Refine value” tool. Let’s see how that would work.

Visit the property and click on “Change Home Value” to the right of the price. Now please update the physical characteristics to where you know the home truly is. If you know intimate details of the home, also please feel free to include custom home improvements, select a few custom comparable properties and lastly select the local market and home conditions.

I believe you’ll find the estimate is corrected very quickly and then saved for future use. Please reply with additional questions.

Like one other poster, I too am a real estate appraiser.

In response to the comment on value of a finished basement: An appraisal is an opinion of market value. Market value is the price to which a willing buyer and seller agree is fair. Therefore, the value is not what the cost of finishing the basement is, it's how a 'typical' market participant will react- what a 'typical' buyer is willing to pay. The full definition of markeet value is contained in teh certification statements in her appraisal report.

In our region, basement finish generally does not contribute value per square foot as high as above grade finished areas because many basements have limited window space and natural light, and feel more like dungeons than living area. Exceptions are those with high ceilings, lots of natural light, and that generally don't feel like a basement. Again, this is a measurement of buyer response, not some abstract equation.

As far as the Nevada market's impact on the value of her home, market value is impacted by the law of substitution: If two houses for sale are virtually identical (which of course never happens)but one is priced less, the lower price home will sell first. Therefore, assuming that the custom home market sale prices in her area are declining, then her custom home cannot be worth as much as it was previously. It matters not if she has no intends to sell, market value by definition is based on market sales transactions, and the lower the comparable homes are selling for will lower her value accordingly.

Market value is quite different than taxable or assessed value, insurable value, investment value and other measurements of value, and all lenders require market value appraisals for loan purposes.

After listening to the radio show on Saturday I went to Zillow and looked up my home value, their “Zestimate” it came in at $457,500. we are in the process of refinancing right now so I had the house appraised last week. The estimate? $475,000, or a difference of $18,000. Not all that far off the mark.

I live in the desert southwest and built a custom home with a full finished basement. While it is totally liveable with heating and airconditioned it remains a temperate 70 degree year round. However, upon recent attemps to restore my home equity line of credit my appraisal assigns a dollar value to this basement square footage that I could not begin to rebuild it for. In this day of "energy efficiency" why is this "livable" basement square footage so discounted in value, when in reality, with regard to energy effeciency 'premium' pricing should be a factor...we are assessed the same value for tax purposes from the County Assessors Office whether it is "above grade" or "below grade" with regard to 'finished' sqare footage...I question the wisdom of the equations being utilized for appraisal purposes by licensed appraisers and really question their contribution to the overall real estate market 'doom and gloom' when I see such extreme swings in home values in the custom market. All of Clark County Nevada is being penalized for much of the devastation of the housing loan debacle in areas of Las Vegas and there are areas that would hold their own if we were not being targeted by lazy and irresponsible generic/box valuations of property that blanket our city.

Actually, Mr. Retsinas, websites like Edmund's and Kelly's Blue Book do give you the trade in value (what you can get from a dealer) and private sale value (what you can expect to get from your neighbor. And by the way, I don't consider a $300K swing in the proposed value of a property particularly useful information.

Just for fun, I decided to use Cyberhomes AVM (Automated Valuation Model)
to see how my home compares to several of my neighbors’ homes. Cyberhomes gets the data about my home, such as size, bedroom and bath count, lot size and similar from the county Assessor records. There is no information on condition, and it is not disclosed how this data is processed. For five homes, including my own, all on the same street, very similar in size, age, and bedroom counts and lot sizes, I received some very interesting results of these very comparable homes: ‘values’ mostly varied in a range of plus or minus 10%, which on the surface does not sound too bad, except some of the homes in better condition were valued well below those in average or fair condition. One house was nearly 80% higher than the adjoining home!

Other interesting results showed the rate if decline or increase in ‘value’ over the past month. Some grew in ‘value’ by a few hundred dollars, others increased or declined by tens of thousands of dollars…one increased in ‘value’ by $86,000in just one month! Same market conditions, same neighborhood, and very similar homes.

With the lack of consistency in these results, it is quite clear why AVM should not be relied upon. Try it on your home and your neighbors’ homes and see what you think.

as a professional appraiser with 25 years of experience i can concur you get what you pay for, what do you expect for free? these are not appraisal sites. only fully liscenced appraisers are legally able to determine value per state laws. pretending something is real does not work over time, the lesson, get real

Tess . . .

Just was listening to your segment on home values, especially the Cyberhome website.

I bit, I pulled up the website, I found the value of my house to be within $50K of what my County Auditor believes it should be.

My curiousity got to me so I put in: "8000 Avery Road Dublin, OH 43017"
The website Cyberhome lost ALL credibility with me.

This 13,000 s.f. property was built in 1974. The current County Auditor's valuation is $1,329,000 - BEFORE the home improvements which have been going on for the past 3+ years! (The aerial won't show the newly created FRESH WATER MOAT around the home situated in the middle of their 7.2 acre property.
Incidentally, this house is located at the edge of Jack Nicklaus' Muirfield Village which hosts a PGA tournament next week.

www.cyberhome.com . . . Thanks for the laugh!


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