Austin Real Estate and Automated Valuation Tools
You’ve no doubt heard of Zillow, and know how inaccurate its Austin real estate valuations can be. That’s not completely the fault of Zillow because Texas is a non-disclosure state, meaning when you sell your house, it’s nobody’s business what you sold it for, or what the buyer paid.
This results in limited sold data being available in public records. Thusly, it’s more difficult for third party estimation tools such as Zillow, Trulia and Yahoo to produce an accurate home value estimate. In most states, all real estate sales data is public record and thus there is more data from which to draw conclusions about a particular home value. Not so in Texas. So, with the exception of lower valued homogeneous neighborhoods where value ranges fall within a fairly tight range of size, age and condition, estimates from Zillow (or Zestimates as they call them), can be all over the map, sometimes grossly inaccurate.
Lately I’ve been experimenting with a new valuation tool that mashes up public data with actual Austin MLS sold data. This is called Value Map and is provided by our Austin MLS to its members. I have mine it set up at AustinValueMap.com because the default url is long and ugly. It’s free, no signup required. And so far, I’m finding it to be surprisingly accurate, though of course not perfect. You can also sign up for alerts when a property similar to yours and within a two mile radius is sold. For some reason, though provided by our Austin MLS, you can type an address from anywhere in the U.S., not just Austin. Try it out, let me know what you think about the accuracy of the value for your property, even if you’re not in Austin.
Lending and appraisal companies seem to be trending toward automated valuation system. The Value Map product is used by banks and appraisers all over the country. It uses a proprietary algorithm to determine values. Often, when we sell a house, the bank trusts the value produced by this methodology and won’t even order a full appraisal, opting instead for a “drive by” appraisal, where an appraiser drives by to make sure the house is indeed there, but doesn’t go inside or perform the full appraisal. I think this is dumb.
On the other hand, though it might be inaccurate, the valuation tool won’t commit purposeful fraud, as many appraisers and lenders did during the most recent real estate boom. So it may be, from a bank/lender perspective, the benefit of fraud elimination outweighs the occasional over-appraising of a home. And probably, if the value is way off from the contract price, they’re going to order a full appraisal anyway.
But as a buyer or seller, will there ever come a day when you simply type in your address and it spits out the true market value of your home (what a buyer would pay)? No (except by coincidence), and here’s why.
Let’s take a 15 year old home in Circle C for example, like one we recently encouraged our buyers to walk away from after the inspection revealed over $20K in needed work.
This particular home had all original mechanical equipment, including the roof. One of the A/C systems had a coil leak and need replacement. The other was functioning ok but at the end of it’s useful life. Ductwork was deteriorating, the roof was baked (literally, from poor ventilation and design), and there was a basket of miscellaneous repairs on top of the big ticket stuff, such as original water heaters and appliances, plus more small stuff.
So, if you’re a buyer of a home in the 12 to 18 year old range, with all original equipment, you have to assume that you will be paying to replace all of that stuff very soon, and you thusly, it would be prudent to mentally add the cost of doing so to the price you’re paying so you can know what the home is really going to cost you. In the case of a 2500+ sqft home with two HVAC systems, roof, water heaters, some siding, we’re easily talking over $2oK to replace a roof and two A/C systems. If you don’t make adjustments to what your willing to pay, you will in fact be paying $20K too much for that home. On a $250K home, that’s more than 8% of your purchase price. Figuring it costs 8% to 10% of sales price to sell a home, if you buy the home in its depreciated condition, you’ll need to see almost 20% appreciation in value before you get to break even. Not a smart buy.
And since there is no valuation tool that can know the age and condition of the major component items of a home, there will NEVER be a valuation tool that can accurately predict market value of a home. Also unknown to a valuation tool are the “look and feel” attributes of a home and its surroundings. For example, two identical homes, same builder, same floorplan, two blocks apart, can easily sell for more than a 10% difference in price.
This could be, for example, because one home has all of the aforementioned component items updated and replaced and sits in a culdesac lot with trophy oak trees in the front and back yard backing to a greenbelt, while its identical twin two blocks away backs to a busy street, has a plain lot, no trees, and needs complete replacement of roof, HVAC systems, water heater and appliances. Add an updated kitchen with granite and stainless appliances to the first, and original outdated kitchen in the second, and these two homes will not be valued anywhere close to each other by ordinary buyers and experienced agents. But an automated valuation tool would spit out the same or similar values for each.
So while I think we will continue to see adoption of automated real estate valuation tools, and they’re fun to play with, if you really want to know what a house is worth, you have to go inside and have a look, have it inspected, and have a Realtor who knows the neighborhood run a CMA with appropriate age and attribute adjustments.
If you have a second, type in your address in the Austin Value Map and leave a comment here or otherwise let me let know how close it came to what you think your home is really worth. (NOTE: For homes currently listed for sale, it may return the list price value, which is sort of weird, but that’s what it seems to be doing)