If last week the highest sale in, say, the 90041 zip code was $695,000 and this week the highest sale is $748,000â€”does that mean that the value of my house just went up $40,000?Here is my question for appraisers: If last week the highest sale in, say, the 90041 zip code was $695,000 and this week the highest sale is $748,000â€”does that mean that the value of my house just went up $40,000? And what does that mean about the house just across the line in the 90042 zip code that just closed escrow at $801,000? How does that sale affect the value of my house? Is my house now worth $801,000?
Letâ€™s see what Zillow says: Oh, how completely wrong! It says that the value of my home has gone down by 3% in the last month! How does it figure that? Because itâ€™s a computer model that takes numbers and mashes them up to spit out statistical probabilities, thatâ€™s how.
That is also what a â€œdesktopâ€ appraisal does. This is what a lot of lenders use to establish the basis for the value they give a particular property. All it does is take all the numbers within the range that includes your square footage, bedrooms, baths, general location, and mash them together into an estimate of value. Does that have anything to do with what a willing buyer and a willing seller might agree upon to consummate a deal? Not really!
Recently, a buyer had an opportunity to buy a house at what the seller wanted for it before it went on the market. The seller wanted $500,000. This was close to what it had been worth at around the peak of the market say 3 years ago. The buyer consulted 3 appraisers who all said no way was it worth any more than $450,000. And get this, the appraisers figured this out without ever even seeing the property! They looked online, looked at some photos, and made their determination.
Fine, so the sellers went on the market, had literally hundreds of people through the house in about ten days time, had multiple offers and sold the house for $500,000â€”with no appraisal contingency!
So what is the value? When it actually closes escrow, the value will be the $500,000, right? And if the sellers had accepted the $450,000, it would have been worth $450,000, right? So answer me a couple more questions:
If this Seller had been desperate or badly advised, he might have taken the $450,000 and that would have confirmed the value of that house in the neighborhood. This affects more than just that house, doesnâ€™t it. The house next door is now compared to the $450,000 price, not $500,000. This is what has driven down the market prices in our neighborhoods.
I am on a mission to raise the market value in our neighborhoods to a more reasonable level. I know buyers think values should stay right where they are or even go downâ€”but only until they buy, and then they want the values to go up, too. Just like all the other homeowners around here. Like you and me. Iâ€™d love to hear your comments.