Matrix Blog

Posts Tagged ‘Zillow’

[ChartFloor] Manhattan Price Per Floor Breakdown

June 9, 2010 | 6:18 pm | | Favorites |

trdfloorlevel

Floor pricing has been the stumbling block for credibility with automated valuation models (appraisal replacement tools) used by banks and for services like Zillow. StreetEasy gets it right, in the way they display information – grouped by building so the patterns are apparent.

Matthew Strozier over at The Real Deal Magazine asked me to crunch apartment prices to show some sort of floor level relationship to value. I took the down and dirty approach (because SPSS is way over my head) and looked at all closed co-op and condo sales in 2009. I broke those sales down by floor level and crunched the metrics for each floor. The results are seen in this very cool chart. Click on the graphic to the right that TRD created to open the big version.

  • First Column – % share of units on that floor compared to all sales in 2009
  • Second Column – floor level
  • Third Column – Average Price per Square Foot of all sales in 2009 on that specific floor.

Some observations

  • 1st floor – 19.3% jump to the second floor reflecting concerns about security, privacy, and noise levels.
  • 2nd floor – 11.4% jump to the third floor reflecting concerns about security (scaffolding), privacy, and noise levels.
  • 7th floor – jump reflects penthouse and roofline breaks from adjacent 6 story buildings.
  • 13th floor – data suggests only 18.4% of buildings with a 13th floor actually call it that.
  • above 13th floor – market share declines with height, reflecting fewer apartments and the floor level price per square foot continues to rise.

In addition, the erratic price per square foot patterns on the higher floors reflect the differences in views. In our appraisals, we make adjustments for floor level and view separately.

I ended the presentation at the 25th floor only because the data set gets so thin that it was more difficult to extract or infer a pattern.

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Appraisal Journal Study Cites Flaws In Zillow AVM

March 3, 2010 | 2:38 pm |

[click to open report]

Zillow has been one of the most visible and talked about AVMs (Automated Valuation Models) in the US and enjoyed considerable press during the housing boom. Of course they have always been at the mercy of the quality of public record data despite their technology prowess.

Perhaps they were more guilty of overhyping the reliability of their “Zestimates” in the early days by presenting value estimates precisely down to the dollar. But hey, it was cool to see how much your neighbor’s house was worth.

There was an interesting article in Valuation Review (subscription) and HousingWire.

The study concludes that:

Zestimates on Zillow.com are no more accurate than homeowner’s estimates.

When it comes to using the Zillow.com automated valuation model (AVM) to get a free listing price on a house, users may be getting what they paid for, according to a report published by the Appraisal Institute that finds the Web site overestimates the values on homes almost as often as the actual homeowners.

Zillow has become the real estate punching bag to the real estate community. And once again, they are on the defensive in the media coverage of this report.

Here’s the issue:

The key issue regarding Zillow’s Zestimates is whether they reflect transaction prices. Zillow has been described both as “a useful site” and as “categorically wrong.” There have been many instances of praise and many instances of complaints by homeowners using the Web site to estimate the value of their homes. Realtors in general have also been critical of the values produced by Zillow.

Agents had issues with over valuation because they tended to set seller’s expectations too high. Of course, appraisers have an ax to grind with a service that was perceived to trivialize their expertise in valuation.

The report, “Zillow’s Estimates of Single-Family Housing Values,” was authored by Daniel Hollas, Ronald Rutherford and Thomas Thomson, doctors in economics, real estate and business, respectively. The report was published in the quarterly technical and academic publication of the Appraisal Institute, the nation’s largest association of real estate appraisers.

View the report.

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[The Homeownership Preservation and Protection Act] Dodd Bill Places A “Hit” On Good Appraisers, With Bondage

June 6, 2008 | 5:07 pm |

This post was also presented on Matrix.

Back in September 2007, US Senator Dodd from my home state of Connecticut submitted what appears to be hastily conceived legislation to solve the mortgage crisis in response to the prior month’s credit market meltdown. I believe it was created to address subprime lending, but because it was so loosely presented, it casts a wide blanket over the lending process to little effect and likely causes more problems because it embraces conventional wisdom rather than actual practices. As far as appraisals go, it clearly doesn’t recognize the fundamental problems that New York AG Cuomo has already recognized.

The appraisal related language in the bill is sloppy and contains slang, suggesting that someone with little experience drafted it or the the bill was not understood by the Senator. I am very disappointed. It found co-sponsors because it contains buzzwords like “appraiser”, “mortgage” and “meltdown”.

In fact, the language of the bill was so vague and misdirected (the appraisal part) that most appraisers never took it seriously, instead focusing on efforts by Senator Frank and NY AG Cuomo. However, it still has life and is being taken seriously.

The bill is now in the Banking, Housing and Urban Affairs Committee.

I think Senator Dodd’s introduction of the concept of bonding was to incentivize the appraiser to do good by having “skin in the game” but it does nothing to solve the current lending problem. Is this the best that can be done by Congress? It’s damaging to the lending industry and poorly written and thought out, and in my opinion, it allows Congress to say this takes care of the problem, when in fact, it makes it worse.

Here is the appraisal-related content summary provided by Senator Dodd’s web site.

V. Require good faith and fair dealing in appraisals.
– Prohibit pressure from being brought to bear on appraisers.
– Hold lenders liable for appraisals to avoid the appraisal problems created in the current climate.

Here’s the actual language of the appraisal related portion of the bill:

Title IV Good Faith and Fair Dealing In Appraisals

Requirements for Appraisers

  • Appraisers owe a duty of good faith and fair dealing to borrowers.

My comment: Generic boilerplate that probably needs to be said. On that note I propose legislation that government officials never abuse their power, the public shouldn’t commit crimes and all school kids show do their homework. In other words, its an ideal, but it has nothing to do with addressing the core systemic problem – remove the possibility of collusion from the process.

  • No lender may encourage or influence an appraiser to “hit” a certain value in connection with making a home loan. In addition, a lender may not seek to influence an appraisers work, nor select an appraiser on the basis of an expectation that he or she will appraise a property at a high enough value to facilitate a home loan.

My comment: They actually use the word “hit” in the legislation. Who wrote this? How is a lender prevented from attempting to “seek to influence an appraisers work.” These are just words.

  • A crucial cause of the current mortgage meltdown has been inflated appraisals. Many ethical appraisers complain that lenders will only use appraisers who consistently value properties at the levels necessary to allow the loan to close. Appraisers who do not cooperate simply do not get hired. This is particularly detrimental to the homeowner because it leads the homeowner to believe he or she has equity where little or none may exist.

Comment: “A crucial cause” implies appraisers initiated the problem. Wrong. They were the enabler of the lenders and the bad ones were rewarded for unethical practice. They actually use the word “meltdown” in this bill? This paragraph also infers that good appraisals are always low. You can say stuff like this all day long but that doesn’t stop it from happening.

  • Appraisers must obtain bonds equal to one percent of the value of the homes appraised.

Comment: “How do the costs of the bonding enter into this? I am not familiar with getting bonded I assume that means appraisers would file for a bond with a predetermined amount so we get enough coverage. That violates federal licensing law (USPAP). This does nothing to fix systemic fraud and burdens the appraisers that do the right thing with additional costs. How does it keep a bad appraiser from doing bad work? They charge the bond costs to their unwitting (or not) clients and it’s no skin off their back. Good grief.

  • Remedies available to borrowers

— Lenders must adjust outstanding mortgages where appraisals exceeded true market value by 10 percent or more.

Comment: Can you imagine the litigation costs that would result if this passes? Who determines whether the value is off by more than 10%? Another appraiser who is hired by the homeowner? An AMC? A real estate broker? Zillow? A lender using an Automated Valuation Model? What is “True” market value? Is this a new definition of market value and all other forms like “Fair” used by GAAP are “False”? I find it hard not to say the word “true” in this application without sounding sarcastic.

— When an appraisal exceeds market value by 10 percent (plus or minus 2 percent) or more, a borrower has a cause of action against the lender. A consumer who is awarded remedies under this section shall collect from the appraiser’s bond.

Comment: Can you imagine the the costs that will be endured by the consumer? I understand that bonding costs for the typical appraiser would be $10,000 to $40,000 per year (per appraiser). For what? Appraising is already a razor thin margin business. Two things are going to happen: appraisal services are going to probably double, and many good appraisers will be forced out of business.

— Actual and statutory damages up to $5,000.

Comment:The further destabilization of the lending industry is worth $5k?

Here are the Senators who think this is a good idea:

Sponsored by Christopher Dodd(D-Ct), with co-sponsors: Sen. Daniel Akaka [D-HI]
Sen. Barbara Boxer [D-CA]
Sen. Sherrod Brown [D-OH]
Sen. Robert Casey [D-PA]
Sen. Hillary Clinton [D-NY]
Sen. Richard Durbin [D-IL]
Sen. Dianne Feinstein [D-CA]
Sen. Thomas Harkin [D-IA]
Sen. Edward Kennedy [D-MA]
Sen. John Kerry [D-MA]
Sen. Amy Klobuchar [D-MN]
Sen. Frank Lautenberg [D-NJ]
Sen. Claire McCaskill [D-MO]
Sen. Robert Menéndez [D-NJ]
Sen. Barbara Mikulski [D-MD]
Sen. Barack Obama [D-IL]
Sen. John Reed [D-RI]
Sen. Charles Schumer [D-NY]
Sen. Sheldon Whitehouse [D-RI]

I’ll bet if the situation was explained to the Senators with clarity, they would have issues with the bill as written. Time is of the essence, but the solution needs to solve the problem. The problem is about self-dealing and allaying investor’s concerns with the products they are purchasing.


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[The Homeownership Preservation and Protection Act] Dodd Bill Places A “Hit” On Good Appraisers, With Bondage

June 6, 2008 | 3:22 pm |

Back in September 2007, US Senator Dodd from my home state of Connecticut submitted what appears to be hastily conceived legislation to solve the mortgage crisis in response to the prior month’s credit market meltdown. I believe it was created to address subprime lending, but because it was so loosely presented, it casts a wide blanket over the lending process to little effect and likely causes more problems because it embraces conventional wisdom rather than actual practices. As far as appraisals go, it clearly doesn’t recognize the fundamental problems that New York AG Cuomo has already recognized.

The appraisal related language in the bill is sloppy and contains slang, suggesting that someone with little experience drafted it or the the bill was not understood by the Senator. I am very disappointed. It found co-sponsors because it contains buzzwords like “appraiser”, “mortgage” and “meltdown”.

In fact, the language of the bill was so vague and misdirected (the appraisal part) that most appraisers never took it seriously, instead focusing on efforts by Senator Frank and NY AG Cuomo. However, it still has life and is being taken seriously.

The bill is now in the Banking, Housing and Urban Affairs Committee.

I think Senator Dodd’s introduction of the concept of bonding was to incentivize the appraiser to do good by having “skin in the game” but it does nothing to solve the current lending problem. Is this the best that can be done by Congress? It’s damaging to the lending industry and poorly written and thought out, and in my opinion, it allows Congress to say this takes care of the problem, when in fact, it makes it worse.

Here is the appraisal-related content summary provided by Senator Dodd’s web site.

V. Require good faith and fair dealing in appraisals.
– Prohibit pressure from being brought to bear on appraisers.
– Hold lenders liable for appraisals to avoid the appraisal problems created in the current climate.

Here’s the actual language of the appraisal related portion of the bill:

Title IV Good Faith and Fair Dealing In Appraisals

Requirements for Appraisers

  • Appraisers owe a duty of good faith and fair dealing to borrowers.

My comment: Generic boilerplate that probably needs to be said. On that note I propose legislation that government officials never abuse their power, the public shouldn’t commit crimes and all school kids show do their homework. In other words, its an ideal, but it has nothing to do with addressing the core systemic problem – remove the possibility of collusion from the process.

  • No lender may encourage or influence an appraiser to “hit” a certain value in connection with making a home loan. In addition, a lender may not seek to influence an appraisers work, nor select an appraiser on the basis of an expectation that he or she will appraise a property at a high enough value to facilitate a home loan.

My comment: They actually use the word “hit” in the legislation. Who wrote this? How is a lender prevented from attempting to “seek to influence an appraisers work.” These are just words.

  • A crucial cause of the current mortgage meltdown has been inflated appraisals. Many ethical appraisers complain that lenders will only use appraisers who consistently value properties at the levels necessary to allow the loan to close. Appraisers who do not cooperate simply do not get hired. This is particularly detrimental to the homeowner because it leads the homeowner to believe he or she has equity where little or none may exist.

Comment: “A crucial cause” implies appraisers initiated the problem. Wrong. They were the enabler of the lenders and the bad ones were rewarded for unethical practice. They actually use the word “meltdown” in this bill? This paragraph also infers that good appraisals are always low. You can say stuff like this all day long but that doesn’t stop it from happening.

  • Appraisers must obtain bonds equal to one percent of the value of the homes appraised.

Comment: “How do the costs of the bonding enter into this? I am not familiar with getting bonded I assume that means appraisers would file for a bond with a predetermined amount so we get enough coverage. That violates federal licensing law (USPAP). This does nothing to fix systemic fraud and burdens the appraisers that do the right thing with additional costs. How does it keep a bad appraiser from doing bad work? They charge the bond costs to their unwitting (or not) clients and it’s no skin off their back. Good grief.

  • Remedies available to borrowers

— Lenders must adjust outstanding mortgages where appraisals exceeded true market value by 10 percent or more.

Comment: Can you imagine the litigation costs that would result if this passes? Who determines whether the value is off by more than 10%? Another appraiser who is hired by the homeowner? An AMC? A real estate broker? Zillow? A lender using an Automated Valuation Model? What is “True” market value? Is this a new definition of market value and all other forms like “Fair” used by GAAP are “False”? I find it hard not to say the word “true” in this application without sounding sarcastic.

— When an appraisal exceeds market value by 10 percent (plus or minus 2 percent) or more, a borrower has a cause of action against the lender. A consumer who is awarded remedies under this section shall collect from the appraiser’s bond.

Comment: Can you imagine the the costs that will be endured by the consumer? I understand that bonding costs for the typical appraiser would be $10,000 to $40,000 per year (per appraiser). For what? Appraising is already a razor thin margin business. Two things are going to happen: appraisal services are going to probably double, and many good appraisers will be forced out of business.

— Actual and statutory damages up to $5,000.

Comment:The further destabilization of the lending industry is worth $5k?

Here are the Senators who think this is a good idea:

Sponsored by Christopher Dodd(D-Ct), with co-sponsors: Sen. Daniel Akaka [D-HI]
Sen. Barbara Boxer [D-CA]
Sen. Sherrod Brown [D-OH]
Sen. Robert Casey [D-PA]
Sen. Hillary Clinton [D-NY]
Sen. Richard Durbin [D-IL]
Sen. Dianne Feinstein [D-CA]
Sen. Thomas Harkin [D-IA]
Sen. Edward Kennedy [D-MA]
Sen. John Kerry [D-MA]
Sen. Amy Klobuchar [D-MN]
Sen. Frank Lautenberg [D-NJ]
Sen. Claire McCaskill [D-MO]
Sen. Robert Menéndez [D-NJ]
Sen. Barbara Mikulski [D-MD]
Sen. Barack Obama [D-IL]
Sen. John Reed [D-RI]
Sen. Charles Schumer [D-NY]
Sen. Sheldon Whitehouse [D-RI]

I’ll bet if the situation was explained to the Senators with clarity, they would have issues with the bill as written. Time is of the essence, but the solution needs to solve the problem. The problem is about self-dealing and allaying investor’s concerns with the products they are purchasing.


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[Kayak Liquidity] Mortgages Underwater, Or At Least Those With A Pool

May 14, 2008 | 12:04 am | |

In the past week, I took out my sea kayak (SS. Miller Samuel) and boat (dubbed “Mom Said”) for the first time this season and have started wondering if it has influenced my perception of the credit crunch. Are we already underwater? Zillow and Shiller thinks so.

Last week, the WSJ ran a fun story on page 1 by Michael Corkery called For Mortgages Underwater, Help Swims In.

While lawmakers in Washington struggle to solve the nation’s foreclosure crisis, officials here are using a small fish to clean up some of the mess.

The Gambusia affinis is commonly known as the “mosquito fish” because of its healthy appetite for the larvae of the irritating and disease-spreading insects. Lately, the fish is being pressed into service in California, Arizona, Florida and other areas struggling with a soaring number of foreclosures.

The mosquito fish is well suited for a prolonged housing slump. Hardy creatures with big appetites, they can survive in oxygen-depleted swimming pools for many months, eating up to 500 larvae a day and giving birth to 60 fry a month. That can save environmental crews from having to repeatedly spray pesticides in the pools while the houses grind through the foreclosure process.

Of course, Fannie Mae wants to keep those houses occupied so fish don’t factor into the credit crunch. In James Hagerty’s article Fannie to Aid Underwater Loans:

Fannie Mae is preparing to introduce by midyear a program of refinancing mortgages for people who owe more than the current value of their homes, a situation known as being “underwater.”

The plan is the latest twist in efforts to contain the surge in foreclosures on homes in much of the U.S. It differs from a bill approved by the House on Thursday that would authorize the Federal Housing Administration to insure loans for distressed borrowers only after the lender has written down the principal — something many lenders are reluctant to do. Fannie’s refinance plan would result in new loans of equivalent size, leaving the borrower underwater but giving him or her a lower monthly payment or at least a fixed rate.

Of course, there can’t be a discussion about liquidity without the mention of beer and wine.

Judy Weil, editor at Seeking Alpha, posts a funny: Maybe Beer Will Help Stimulate House Sales.

A group of real estate agents is hosting a free condominium and beer-tasting tour.

I can only imagine the liabilities the Oregon agents were subject to without thinking. Of course, wine generates the same result. It also makes me wonder about Baltimore.

To help you steer through this complicated morass, the following video will show you others that lost their cool.


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[Matrix ’82] Calling All Green, Irish (and non-Irish): Enter Your Carnival of Real Estate Submissions

March 14, 2008 | 7:44 am |

Way back in September 2006, I was the 11th host of the Carnival of Real Estate. It is managed by Drew Meyers over at Zillow Blog, who has tirelessly kept it running.

I sort of lost interest last year and was re-connected by Property Grunt, whose take no prisoners, ’cause it ain’t going to be a PC post, was host a few weeks ago.

When Drew asked me to host it for week 82 beginning St. Patrick’s Day, how could I refuse? I have Irish heritage traced back to the mid-1800’s, The original Matrix movie inspires the color green, my youngest son and I are rabid NY Jets fans (Gang Green) and “Green” is the color du jour for real estate development these days.

Here’s an excerpt from my quote in the Newsweek article on green buildings this week:

The true monetary value of green is in dispute: Real-estate appraisers are still not certain how much, if any, value LEED certification adds to the long-term value of a property. “It’s entering into our calculus right now,” says Jonathan Miller, president and CEO of Miller Samuel real-estate appraisers in New York City. Builders are going green in an effort to make their projects stand out at a time when the housing market is slowing down and builders need a competitive edge. Miller does see ecofriendly buildings as a long-term trend. Not having the term “green” in your marketing materials, he says, has become a negative, so he expects it to eventually become the standard.

No “green” requirement for your posts but hey, it’s environmentally PC.

If inspired, please submit your posts by Sunday night.


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Carnival Of Real Estate [Week of February 11, 2008]

February 11, 2008 | 6:26 pm |

In the spirit of ’76, ’77 (the 77th Carnival of Real Estate post) I felt festive enough for some blue cotton candy and to be able to throw darts at balloons (aka tracking real estate markets). The last time I had cotton candy was in November 2006.

What is a carnival?

Here’s some basic info on what it is and how to get started. Its basically a a bunch of blogs that take turns displaying the favorite posts for the group each week. Carnivals can vary by topics and of course and the most relevant to Matrix readers is the Carnival of Real Estate.

This week’s host: Property Grunt who uses his razor sharp insight to filter out all the submitted posts.

Next week’s host: Brownstoner Pine Needle Lawn (will apply the Brooklyn alphabet bring green to the Carnival of Real Estate.


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Zillow Gets Zerious About Public Records

February 12, 2007 | 1:02 pm |

Online real estate’s posterchild for pricing inaccuracy (warning: I have been overusing posterchild lately) has been working hard to combat that image with the release of their 4th quarter market report. Zillow has been the subject of scrutiny for the wide range of inaccuracies in their pricing of specific properties called Zestimates (and their incompatibility with Mac’s Safari browser – must use Firefox). But hey, its still in beta a year after launch.

Hint to Zillow: if a Zestimate is priced to the dollar, even with a range, it infers accuracy to the dollar. I wrote about expectations of precision last week in Values: Being Precise About Precision Expectations (aka Good Enough).

But market reports are a different animal. The attempt to value amenity differences (ie sq ft, room count, lot size, etc.) confuses many consumers and has been controversial due to inaccuracy issues. They buy national data feeds, not unlike many online service providers, and use this to come up with their Zestimates. The use of this data to attributes of a specific property is what has been tough for them (or anyone) to figure out to date.

Zillow has used this same data to crunch numbers for the quarter. However, their market studies use pricing as the main data point and there is limited consideration of amenity differences (other than location). This simplicity allows the reports to appear to be accurate, although I can’t vouch for every market.

When you consider the options for national data sources like NAR, which is a trade group and OFHEO which includes refi data in their results, you don’t have a lot of pure choices. That sounds like a cheap shot to Zillow but its not meant to be.

The report is a whole lotta spreadsheets by MSA, broken down by median sales price (Zindex). In the markets I am familiar with, the results seem to make Zense.


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Values: Being Precise About Precision Expectations (aka Good Enough)

February 6, 2007 | 9:31 am |

Well, kinda, sorta.

In the discussions I often have with real estate professionals and users of their services (and mine) is the topic of precision in valuation. Its not a direct topic of discussion. It’s kind of stumbled into by accident. Coming up with a reasonable value with undefined expectations of precision can be frustrating for all parties (do we hear “managing expectations” anyone?).

Here are a few examples:

  • Example 1 My parents bought a house in a subdivision in Framingham Massachusetts in 1963 (the day President Kennedy was assassinated but after it happened) for something like $19,250 and then sold it for $21,050 in 1967. I am not sure if I have the sales prices perfectly accurate but I know it was in increments of $50. That is the particular level of precision that existed in that market at that time.

  • Example 2 I have reviewed appraisals where the result of the valuation might be a very specific number like $975,228, mainly because the appraiser was lazy and averaged the comps presented (not supposed to do that). The problem with inferring this type of precision is you are essentially saying as a valuation expert that you are so accurate; that you can come within one dollar of what the property is worth. I contend that there is not a human being on the planet that can be that accurate in valuation. $1 / $975,228 = 0.0001%.

  • Example 3 Very high-end properties in my market are usually negotiated in 6 figure increments. In Manhattan, properties over $20,000,000 tend be sold in increments of $500,000 to $1,000,000. Our firm had inspected properties last year that sold for $41,000,000 and $52,000,000 (and both need about $10,000,000 worth of renovations) so this price range has been fairly active.

One of the first things I look at is the general price range of the properties being observed.

In my subdivision house example 1, $50 in a $20,000 (0.25%) housing market was the precision that the market expected. That’s pretty tight. In my second example, the precision at the near $1,000,000 price point in my market tends to be about $25,000 (2.5%). In my third example, the expectation is about the same at 2.5% ($500,000 increments at $20,000,000 price levels).

So in my market there is an expectation level of a precision level of about 2.5%. Our firm does relocation work where we are asked to anticipate the market value of a property when sold. The last time we were given a report by one of the firms we do business with, our accuracy level is 3% (the next closest firm was 10%). So this means that we are pretty consistent with the precision expected in the market. If I was valuing property in 1963 where I grew up (for the record, I would be 3 years old), then I would be horribly inaccurate at 2.5% because the increments would be in $500 steps rather than $50 steps.

The reasons for valuation inaccuracy are numerous but here are the biggies:

  • Blinded by one-sided information – the appraiser or broker relies on information provided by the property owner, who is already biased towards their property being worth more. Appraisers who only use comps provided by the broker in the sale are not providing an independent valuation for the lender, who hires them to access the collateral.

  • Lack of information – limited current data, or access to relevant data like listings and contracts in addition to closed sales make the results much more inconsistent.

  • Little understanding of amenity differences – For example, understanding locational differences such as neighborhoods, subdivisions, cul-de-sacs, busy streets, school districts, etc.

  • Using out of date rules-of-thumb – There are some who use rules or experience gathered long ago and do not continue to modify their experience in understanding variances in the contributory value of amenities.

  • Inability to read buyer and seller’s minds – I’ve been working on this by taking vitamins but it hasn’t worked. The message that buyers and sellers give a broker or an appraiser can be very different than what actually motivated them to agree to the sales price.

  • Lack of experience – Raw data doesn’t tell the whole story. Someone who is immersed in a market will stumble on information that less experienced “experts” would have. Data is data but interpretation separates the hacks from the professionals. Automated valuation models (AVMs) [Soapbox] are data crunching programs that spit out values for a property for lenders and online services such as Zillow that provide online values for consumers. They may or may not take you to something close to a reasonably accurate value. If they do, then it’s more likely to be a coincidence and that’s probably not good enough for the user IMHO. However, both services provide a “number” and the assumption by the user is usually made that if a valuation result is in writing, then it must be accurate (read the National Enquirer lately?)

Sellsius makes a strong case for using your senses in valuation in their post I See, said the Blind Man to the Deaf Lady [Sellsius]. However, I feel strongly that the post should be called “I see said the blind man as he picked up his hammer and saw”, but that’s another topic. 😉

Here’s an excerpt:

There are 6 things an AVM (including zillow) cannot do but which impact value are:

* See
* Hear
* Smell
* Taste (this might be a stretch, but some air can be tasted)
* Touch
* Interpret

Precision is a big topic to cover and it affects virtually every real estate transaction. There is plenty more to discuss on the subject, but what the heck, this post is good enough.


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Zillow Make(s) Me Move For Free

December 7, 2006 | 8:22 am | Public |

…and I think I am glad they did… (I’ve got to grab an updated non-beta logo soon).

The real estate valuation site Zillow.com announced a major upgrade today. President and co-founder Lloyd Frink stopped by my office to explain what the upgrade entailed. The upgrade to Zillow allows

…homeowners and real estate agents to post homes for sale for free. Additionally, in redefining what it means for a house to be “For Sale,” Zillow is enabling any homeowner to post a Make Me Move price.

New Zillow features include:

Make Me Move“Make Me Move is our twist on the traditional ‘For Sale’ sign.”  A homeowner can easily post a Make Me Move price without exposing any personal information.  Zillow then enables interested buyers to contact the owner through an email “anonymizer.”  There is no charge for the service.

For Sale…Opening up every home’s Web page on Zillow.com for owners and their real estate agents to plant virtual ‘For Sale’ signs in their Zillow front yards for free.”

Real Estate Wiki The wiki is seeded with more than 100 articles by Zillow editors on topics of interest to home buyers, sellers, and owners.  As a wiki any visitor can edit an article, comment on an article, or create a new article and publish it for all to see.

Improved searching and mapping functionality This incorporates the new “for sale” feature (note avoidance of the word “listing”).

Zillow has grown their property valuation database to 70 million homes, essentially providing a home page to each one of them. Its a daunting task and Zillow has been hampered by low accuracy rates and the rath of the real estate brokerage community [Matrix].

Their position is to place a value with each residential property in the United States, first and foremost. Lloyd told me that their challenge is to get a number associated with each property as a first priority.

Accuracy will likely come later but much of that effort is at the mercy of public records. The ability for the consumer to edit property facts will help, but will be very hard to police. However, the new edits will not be incorporated into the logarithms that calculate values so the tweaked data will not pollute the public record data feed.

Their model is advertising based and in markets where accuracy is highest, should draw the most traffic and advertisers that want to be associated with their product. In markets where accuracy is very low (48% of the US is more than 10% more or less than the actual value), it should be a much harder sell so Zillow really is incentived to keep making improvements to their service.

I would imagine that real estate brokers will use the listing service because its free and sellers will probably expect it to be used. However, since the site is known as a valuation tool first and foremost, I am not sure how effective it will be at selling properties.

I think the new features may damage their identity as a real estate valuation tool, or at the minimum, confuse consumers and make real estate brokers more upset. Still, its an innovative and creative way of presenting and researching real estate information. Since local consumers and brokers are their users and largely determine who the advertisers are, I hope they have thought this through.

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Home Prices: To Tell The Truth, The Whole Truth And Nothing But the Truth (Sort Of)

December 7, 2006 | 8:15 am | |

Priceless…

I got the idea for this post after trading emails with David Leonhardt of the New York Times the other day as he worked in his interesting Economix column: The Hidden Truth About Home Prices [NYT] and the companion article More on Housing Prices [NYT]

Its very difficult for most consumers, government officials, academia and real estate professionals to get a real world gauge on how a real estate market is actually doing. Tried and true methods all seem to have some sort of flaw and when a market is in transtion, the changes become even more pronounced. And then throw in the source of the information, with the presence of spin, makes the effort even more daunting. Those covering the market, whether it be Big Media and the blogosphere tend to gravitate towards whatever is released that day.

There are two schools of thought on housing stats:

  • Price indexes– These are generally based on repeat sales of the same property over time or an aggregate analysis of housing prices, with some adjusted for seasonal changes and/or inflation.
  • Housing prices – These results are based on an aggregate summary of the sales that transferred during the period and can be skewed by the mix.

You’ve got producers of indexes telling you that prices are less meaningful, yet users of the indexes often view them as a “black box” and don’t grasp how the information was calculated (do we hear “seasonally adjusted?”) Indexes tend to be created for macro markets because the data set needs to be large. Cycnicism has been a detriment to reliance on indexes.

Those that rely on housing prices tout that they are the real thing yet most resources for housing prices tend to be non-economist types, trade groups and real estate firms, because they tend to be easier to generate and report than an index. There are a growing number of market studies put out in the public domain by local real estate brokers and agents (and of course, appraisers) to try to bridge the gap between the national stats and local markets. However these reports are often limited by the size of the data, limited understanding of what the data really means and are clouded by their intentions.

There are generally four sources of housing stat interpretation:

  • Government – namely Commerce/Census/OFHEO
  • Economists – Chicago Mercantile Exchange (Shiller) and other “Starconomists” like Roubini, Zandi (Moody’s) and others.
  • Real estate brokerage trade groups and firms – The National Association of Realtors (NAR) is the primary source of information on national housing and local brokerage firms. Regional MLS systems and brokerage firms are the other primary provider.
  • Online services like Zillow.com, RealtyTrac, ZipRealty release housing stats but generally don’t provide historical trends to include for perspective.
  • Real estate appraisers, consultants and analysts I would fall into this category as well as other housing stats from other markets presented on Matrix. We tend to relay on actual housing prices and interpret them without the trade group or incentivized spin, but its not without its faults either. The data is generally influenced by mix of housing stock that sells so its important that this group bridges the gap between the results and actual conditions.

Local, National and Internet:

  • National housing stats are reported religiously by nearly all national media outlets yet don’t have a link to local markets. What happens in a neighborhood may or may not comparable to national markets and if the results are consistent, its really coincidence. NAR has touted national housing stats as an argument for real estate as a good investment but it doesn’t reflect local volatility.
  • Local housing markets tend to have smaller data sets and are more affected by the mix of what sells. They can have a powerful affect on local moods but are often written by marketing departments as public relations pieces for trade groups and firms with a vested interest in the results and how it affects the bottom line.
  • Internet is an important delivery mechanism for real estate stats, but are often less thought out than traditional sources because many producers of this information don’t have direct real estate experience, but rather have online experience from other industries. This isn’t necessarily a bad thing, because bad habits and bias may not be developed but often, inappropriate uses of month over month stats exagerate certain market conditions.

Pitfalls and/or spins betrays most sources:

  • New home sales – Government stat quality is suspect and not necessarily unbiased. You just have to take a look at the widely quoted housing stats like New Home Sales from the US Commerce Department [pdf]. You just have to read an excerpt from the October release to see what I mean: This is 3.2 percent (±11.2%)* below the revised September rate of 1,037,000, and is 25.4 percent (±10.0%) below the October 2005 estimate of 1,346,000.
  • Median sales price (National Association of Realtors) – There is an emphasis on the national numbers in their series of reports on new and existing home sales. They do break up the country into quadrants, but all real estate is local. They have such an opportunity to gain the public trust but usually provide hard spin to the results and are very inconsistent in the commentary from month to month.
  • Sales price index (OFHEO) – The median sales price includes refinance data and excludes sales with non-conforming loans (mortgages greater than $400,000).
  • Housing price index (Chicago Mercantile Exchange) – Robert Shiller’s repeat sale index lags the market by about 4 months and is targeted towards investors, not consumers. Trading volume is growing but is still too small to really provide a sense of market direction.

Since all politics real estate is local, but reporting of larger data sets is easier but less relevant, its very difficult for the consumer of real estate market information to know what, in fact, the truth is.

At the end of the day, real estate truth is open to interpretation.


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[Hicks On Sticks] Comp Check Battles

November 27, 2006 | 11:32 am |

Butch Hicks is an appraisal veteran that hails from Northern Virginia. I first met him when he was the President of RAC (Relocation Appraisers & Consultants) and was struck by how he got straight to the point, and peppered it with a southern drawl. He is a leader in the appraisal industry and has an affinity for crunching housing market data like I do. In his first post for his Hicks on Sticks column in Soapbox, Butch deals with the ethics and practicality of doing comp checks (which in their pure form, completely violates USPAP). I am thrilled to have him contribute to Soapbox. …Jonathan Miller


“Bill Hicks my friend (if he was a friend, he would have called me Butch), how are you doing? My name is Slick E. Lender and I’m with AllQualify Mortgage. We have just begun an expensive ad campaign in Virginia and anticipate a lot of appraisal work for you as a result and I’d like to establish a relationship with you as the sole appraiser for our use there.”

And so begins yet another phone request for a comp check.

“Ok,” I respond, “what comp do you want me to check?” This, my ‘old’ response, usually resulted in a pained and questioning “huh” from the other end of the phone line. “You asked for a comp check,” I reply, “so which one do you wish me to check?”

These requests for comp checks, whether made by phone or fax, have increased dramatically with the advent of the internet, the slowing of the realty market and rising interest rates that have all but chocked off the refinancing deals of the recent past. Like all appraisers, I assume, I take a different attitude toward such requests from my regular clients as opposed to those like Slick E. but of late my patience has worn a bit thin on all of them.

I’m not going into a discussion here of how providing comp checks in order to lasso an appraisal request might place the appraiser in jeopardy as regards USPAP; I assume all appraisers are aware of such, though the evidence might indicate otherwise (on numerous occasions, I’ve been told by requestors that I’m the first to ever have bought that issue up). Also, I must admit, it’s a little difficult to get terribly angry with those making such requests because I recognize that a primary reason they are doing so is because so many of my fellow ‘professionals’ easily accommodate them.

Worse, to some degree, are those faxed requests that eat up otherwise clean paper. I’ve begun a collection of the worst offenders (another subject for later), you know, the ones with the Appraisal in Appraisal Request crossed out and replaced with a handwritten “Comp”. Lenders, having now caught on the fact that some appraisers (like myself) do not provide comp requests, have now resorted to blast faxing such to every appraiser in a given market. Experience tells them, I suppose, that someone will bite and the chase for ‘the number’ is on.

There was a time when I would respond for such requests by simply sending all sales in a subject neighborhood to the requestor and letting them decide at that point whether or not to proceed with a formal appraisal request. It’s not that difficult to do with my current MLS system but it does take a little time. Time is money however and for that reason I eventually halted even that process. But, what the heck, I’m in the appraisal business and I earn a living by collecting a fee for such, so my new view is to take advantage of a technology that is in some fashion, competing with me.

Zillow.com is now my friend. Since appearing on the scene, I have taken to measuring its performance against mine on actual sale cases. How, you may ask, do I do that? Simple! Since I do a lot of relocation work, I have something to measure my own performance against. By capturing Zillows value, along with my own on every relocation assignment and tracking the history of the subject as it goes to settlement, I have concluded that in most cases, the Zillow value is in excess of my value estimate and the eventual sales price (in fact, of late, the Zillow value is generally higher than even the subjects initial list price).

Back to earning the fee part earlier noted (not to mention saving myself the aggravation), I have devised a new tactic. Now, when I get that call from Slick, I simply point him to the Zillow website. If, after obtaining a ‘value’ there, he wishes to proceed, fine, I can accept the assignment with no problem and a very clear conscience.

Coming in ‘low’ is not a problem; the value is what it is. I don’t worry about irate phone calls from anyone (borrower or lender) any longer; experienced appraisers learn to develop a thick skin.

Experienced appraisers also learn which battles to fight and ones involving comp checks are no longer a priority of mine.

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#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
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