Or Why a Licensed Brokers Price Opinion and Valuations Matters
During the last few years Denver real estate market valuations were literally growing exponentially. While many factors contributed including in-migration and low interest rates, many appraisals were literally not keeping up with recent sale prices. Of note the vast majority of real estate financed will require an appraisal as a condition for the loan.
While few brokers are licensed appraisers, we do have the skill set to review comparable’s, ascertain present market conditions i.e. supply and demand coupled with other unique characteristics of a property and hopefully provide guidance concerning a realistic market value concerning sale or purchasing.
Yet in discussing the market conditions and challenges with peer brokers many of us are running into prospective clients who advise us the value of their properties based on real estate sites such as Zillow, Trulia, HomeSnap, Neighborhood Scout and others which provides valuations, forecasts and past trends.
Please note I am not against Zillow or similar sites; I too use the sites for guidance and information especially when I am asked to opine on a residence or a neighborhood I am not overly familiar with. Yet I also know the limitations of their information, which is based on data mining and gathering of information from public records.
One more than one occasion I have had clients advise “Well (fill in the blank site) says my house is worth $XXX,XXX”. I always caution the realistic valuation may be vastly different that what a website may advise especially one that is not locally based nor its information reviewed by humans i.e. brokers or appraisers. We have all viewed the sites advising what a property’s market value is and a forecast. While not necessarily inaccurate, I would not stake my professional reputation on such valuations. While I do not fault such sites as Zillow, Trulia and similar and I do respect their methodology i.e. using technology to ascertain valuations from various sources, let me provide a real life example of why the site’s information should always be verified by an actual broker, appraiser or similar.
Within the Cherry Creek North neighborhood of Denver are The Harrison Townhomes, 262-268 Harrison Street; 4 row house units with common walls. Designed by a world-renowned architecture firm the units constructed in 1984 continue to be considered contemporary. While providing its owners a striking design and unique design features including vaulted ceilings, the units are also adjacent to a major roadway adjacent to the east lot-line, Colorado Boulevard.
Within the past 7 months two of the interior units, #266 and #264 were sold. The two units are of similar size and their valuations as of today’s date November 13, 2017) is similar.
On Zillow 266 Harrison St. is valued at $507,596
On Zillow 264 Harrison St valued at $495,237
Now if you look at the screen shots provided you will see some immediate differences most notably 266 Harrison is shown as having 1,780 SF while 264 Harrison St is shown as having 1,650 SF.
While 140 SF may not seem to make a major difference i.e. the size of a walk-in closet; in a neighborhood where lower-end properties trade for $300PSF, do the math i.e. $42,000. Of note the discrepancy may be attributed to the following per the listing information as provided on http://www.REColorado.com which is the regional multilist for Metropolitan Denver:
266 Harrison Street was measured by an appraiser with the appraisers measurements and as-built included in the supplemental documents.
264 Harrison Street measurements were obtained from the Denver Assessors Records.
Now the few pictures shown will advise a tale of two units.
266 Harrison Street was renovated prior to being placed on the market. The renovation brought the unit to the desires of contemporary buyers including newer stainless kitchen appliances, granite counters, new energy efficient windows, paint, refinished floors, trim work, mechanicals (HVAC/Electrical Panel) and even exterior updates. While appearing staged, it is actually the seller’s furnishings.
264 Harrison Street is an identical floor plan however from the pictures one may easily ascertain the unit is dated from the laminate counters in the kitchen and bathrooms to the earth tone color scheme popular in the late 1990’s. Most of the interior and exterior is original to the 1984 construction (I was able to review previous sales of the unit) showing wear and tear and consistent with age.
So now we have two units of similar age. Granted one unit has been extensively renovated, the other in a condition closer to the original construction from 30 plus years prior.
Giving Zillow the benefit of the doubt, Zillow has advised a $12,000 difference in valuation with the increase associated with #266, the renovated unit. Disregarding the size difference noted, the $12,000 difference accounts for an approximately 2.5% difference between the somewhat similar units which actually share a common wall. Thus understandable especially if one relies on public records and data mining for valuations.
Now the real truth based on easily attainable public records:
266 Harrison Street sold and closed in April 2017 for $535,000 – $1,500 Concession
Net Effective: $533,000 (or +$25,904 over Zillow’s present valuation)
Thus two units, quite similar and sharing a common wall were valued within $12,000 of each other today yet within 7 months of resale had a $95,000 difference and both vastly divergent from Zillow’s valuations. Of note while the Denver market did slow down seasonally, the market did NOT correct 20% during those 7 months between the closings of the two sales.
I will admit each seller has different motivations and this could account for a divergent in closing prices HOWEVER, #266 Harrison was listed at $527,500 and sold for over asking within 9 days on market while #264 Harrison originally came on the market at $549,950 and when closed the listing price was $474,900 and closed much below after 182 days on the market.
Again I am not bashing Zillow or similar sites. I believe such sites do offer valuable information and insights and again I too peruse the sites for my own work. However I would caution placing too much emphasis on the valuations and forecasts provided as the most accurate information is best obtained via a true human real estate professional i.e. broker, appraiser or similar who is locally based.
For many their residence is probably their largest investment, most indebted and special to them. No matter the market conditions as real estate brokers and appraisers we are looking out for our client’s best interests; can an aggregator of data provide the same trustworthiness?