Office - 954.234.2628 | Palm Beach - 561.807.7788 | Toll Free - 877-278.6231 | Toronto - 416.619.4923

CMA, BPO, Appraisal vs. AVM: The Tools of Valuation

Lately the accuracy and effectiveness of websites like Zillow, Trulia & Realtor.com have been the topic of many discussions among Real Estate Professionals.

In fact, one Broker in San Diego posted a video announcing his decision to stop syndication to various sites such as Zillow, Trulia and “yes, even Realtor.com”. I won’t repeat his words here, you’re free to watch the video for which I’ve included the link.

I will however, offer my personal opinion, which you may, or WILL find is in concert with Mr. Abbott’s comments. I will first disclose that Realtor.com is owned, at least in part, by the National Association of Realtors, and for this reason, I support and encourage the use of Realtor.com, by both Realtors and the public.

I don’t however, like Zillow, Trulia, or any other site which does not take its data directly from MLS’s across the country. But before I get into why, let me first explain a little about the various types of valuation systems/tools, etc…

There are basically 4 that exist today and each serves a slightly different purpose;

First, there is a CMA, Comparative/Competitive Market Analysis. The CMA is standard among Real Estate Professionals and is used, primarily, to present to a homeowner who is thinking of selling and wants to know the value, or really, the best list price for their home. A CMA is prepared by a Realtor using recent sales which are similar to the “subject” property. The subject property, in each example is the property for which the value is being determined. The CMA is a basic version of an Appraisal. Unlike the Appraisal, Realtors do not follow any specific guidelines in choosing comparable properties, other than the basic features of the home; i.e. square footage, # of beds and baths, etc…

Second, is the BPO, which has gained popularity through the housing crisis in its widespread use by Banks in Short Sales and Foreclosures. A BPO, also conducted by Realtors, are similar to CMA’s in that they are used to determine the value or suggested list price of the subject property. Typically the client, the Bank, will set some basic guidelines, i.e. square footage must be within 10% of the subject property, age of the comparable must be within 15 years, etc…

What is common in both these methods, is that each is conducted and prepared by a human; a Realtor. Also, they each lack the use of certain techniques to determine the market value for certain features; e.g. the value of a home with a pool vs. a home without. And for this reason, the Appraisal, when conducted by a competent and knowledgeable Appraiser, is the most accurate and most reliable form of valuation.

Appraisal’s may only be prepared by a State Licensed Appraiser who has gone through years of educational training and years of on the job training. State Certified Appraisers have completed a minimum of 2500 hours of Appraising before they can attain this title. And then only can they sign their names to an Appraisal Report. As a Trainee, which I am, all my work must be overseen by a State Certified, and they are responsible for everything I do. Appraisers, when preparing Appraisal Reports, must follow very strict guidelines as established by the various Lending Institutions. The biggest is Fannie Mae. And they MUST use techniques such as “paired matches”, which is a lengthy and involved process which determines the market value of a specific feature; as I mentioned earlier. A typical Appraisal Report for a residential Property can take a minimum of 3 days to prepare. A CMA or BPO is finished in minutes. It is for this reason, the time investment, that makes the Appraisal the most accurate and reliable determination of value.

Lastly, we have an AVM, which stands for “Automated Value Model”. The key word, and what is at issue, is the word “Automated”. There is NO human intervention. Its all done using computers. AVM’s are ok, at best, for cookie cutter communities, or condo’s, where all the properties are very similar to one another; and any difference is minor in nature. But that just isn’t the case in America. Even in Condo’s, especially those in South Florida, feature different views which can effect the value greatly. In the case of Single Family Homes, each and every home is different; in size, finish, feature, etc…and therefore websites which use AVM’s are dangerous and hurt the market.

Now back to Zillow, Trulia and other such sites which use syndicated data and AVM’s. Each listing entered into an MLS across the country is automatically uploaded to Realtor.com. There is the rare exception to this as some MLS’ and/or Brokerages have opted out of this relationship. But for those that do, the data is uploaded everyday, throughout the day. So when new listings hit the market, they appear on Realtor.com within 24 hours, and similarly, when listings expire, are cancelled, or are sold, they come off Realtor.com almost immediately. Thereby giving the public an accurate, and often updated picture of the Real Estate Inventory in this country.

Syndicated sites, such as Zillow and Trulia, do not have such a relationship with the MLS’ and therefore must find alternate sources for their data, and in most cases this is called Syndication. Data is sold and/or made available, through licenses, to a number of authorized websites. These sites then sell the data to other sites. For example, Realtor.com is authorized to possess the Date, but then through a company called ListHub, the Data is then sent to a long list of other sites across the web. And so on. This is where Zillow gets their information. But this data feed is NOT updated as frequently, and as the line of sites grows farther from the source, the MLS, so does the frequency in which its updated, and therefore, so its accuracy is diminished.

This sites also engage in the sale of advertising on their sites. In most cases, when a visitor to Zillow sees a property listed, there is a better than not chance the agent pictured with or adjacent to the property is NOT the listing agent. That agent has simply paid a fee to appear in a particular market. In fact, recently here in Lighthouse Point, an agent posted another agents listing on Zillow, and did so using a price that was half the actual list price. Probably in an effort to attract buyers. I personally had a client call asking about a property she saw on Zillow. To her it appeared current and accurate. But in fact, the property had sold nearly 2 years ago. Zillow, probably in an effort to keep their inventory high, never removed this property from their site. Do you think they can charge more for advertising if they have more properties on their site?

Now, regarding AVM’s, which are used for services like Zestimate, Zillow simply takes very basic information which is input to and subjected to certain formula’s and algorithm’s designed to spit out a value. Where and why they fail, is when properties in a particular market/neighborhood are vastly different from one another and need the personal attention of a human being seeing the property in person. A computer programmer can not program for an updated kitchen, or a poorly maintained home. So in most cases, their values are off base, and sadly too many of today’s buyers look to these sites for advice. And when they make offers based on this flawed data, they are often disappointed when their offers are rejected, if not often simply ignored.

So you want to search for your new home, please use Realtor.com or even better, select the website of a local Realtor. And when I say local, I don’t mean use any Florida Realtor for Lighthouse Point, use a Lighthouse Point Realtor. When searching in West Palm Beach, find a Realtor that lives and works in the area you want. And when you find the right house, and you want to make an offer, listen to your Realtor. Ask him/her to prepare a Buyer’s CMA; which will demonstrate, through the use of com parables, an approximate value for the home you’re interested in.

If you’re thinking of selling, call three Realtors and ask each to prepare a CMA. Don’t look at an AVM. And don’t be fooled by a high value. I’ll explain why in my next post.

http://www.youtube.com/watch?feature=player_embedded&v=P4pZ0zJdfAY

Levitra is a common medication used to treat inability to get or keep an hard-on. Did somebody tell you about Viagra price? Many sure the efficiency of Viagra is well documented. Erectile disfunction is possibly men’s most common sexual dysfunction. Sex drive problems are so generally a product of how you feel that there is something to that “headache” saying after all. Sometimes another illness can cause to erectile disfunction. While the remedy is credited with nerve pain, it can also cause sexual disorder. What is the most substantial facts you would like to bear in mind consider about this? Some drugs may interact with the medication, including over-the-counter vitamins.


1 Comment

  1. hello, thank you for this article. i will tell this article to my mother in law, coz she to buy a house in california.

Leave a Reply

Your email address will not be published.


Animated Social Media Icons Powered by Acurax Wordpress Development Company
Visit Us On FacebookVisit Us On TwitterVisit Us On Google PlusVisit Us On Linkedin