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Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.

Determining a home’s value is a delicate and specialized skill that has yet to be mastered by man or machine. Much progress has been made over the past decade to advance home evaluations and assessment methods, but ultimately, when it comes to home values, the big three techniques are certified appraisals, comparative market analysis and online-valuations. In all approaches, some of the factors of consideration are: Comparable properties that have recently sold, Properties that are currently listed in the local Multiple Listing Service (MLS), How long similar properties have been on the market, Property listings that have expired or have not sold, and Location appeal (such as corner lot, school district, proximity to highways, street traffi c, etc.).

The Zestimate®

By far and large, Zillow’s online website boasts the most popular online valuation model called a “Zestimate.” A Zestimate is Zillow’s automated assessment of what a home might be worth in today’s marketplace using their proprietary formula. The Zestimate is an independent and unbiased calculation of public and user-submitted data analyzing the recently sold properties of a similar market. According to Zillow, because certain counties have detailed information on homes such as number of bedrooms, bathrooms and square footage and others do not, the Zestimate’s accuracy depends heavily on the availability of data in a specific area. Furthermore, although Zillow allows homeowners to edit their home details, which then gets incorporate into their calculations, most homeowners are unaware or unable to make appropriate edits to improve these exactitudes.

Comparative Market Analysis

A comparative market analyses (CMA) establishes the current market value of the home as prepared and presented by a real estate agent. The CMA is an evaluation of recently sold homes of similar size, condition, age, and style that are near a home intended to be bought or sold. This service is typically offered free of charge and without obligation by a local Realtor®. The CMA is used to help evaluate how a home will fare against the competition of homes currently available in the marketplace similar in number of bedrooms and baths, approximate square footage, size of major rooms, age of the home, property taxes, and desirable amenities, just to name a few. It compares both homes that are currently listed and those recently sold. Using their knowledge of the local market, a competent agent will create a CMA by utilizing recent sales data and active listings to determine the highest price that will still make the home competitive on the open market. Most significantly, an effective CMA will reflect real-time market movements, inventories, trends and activities.

Certified Appraisals

A real estate appraisal is done by a licensed real estate appraiser, and is most often used by lenders when issuing mortgages for refinancing or buying/selling a home. Naturally, appraisals can also be used for many other reasons if a determination of value is needed or required.¯A real estate appraiser’s only job is to give an unbiased opinion of value of the subject property. An appraiser will use similar methods in coming to a property value as a real estate agent, but they must also follow strict licensing and industry guidelines as well as follow the Uniform Standards of Professional Appraisal Practices (USAP). The appraiser will base their estimate of value primarily on the ‘sales comparison approach’. A “comparable” is a house that was recently sold that is similar to the home being appraised based on specific comparable criteria. This criteria typically includes similarities in style, age, quality, condition, appeal, square footage, time of sale, price range and functional use.

Awkward Assessments

A few months ago, Zillow CEO, Spencer Rascoff purchased of one of the most expensive homes ever sold in Los Angeles, with a price tag of close to $20 million. Interestingly, the six-bedroom, nine-bathroom estate in Brentwood, CA was valued almost $2 million less on the Zillow Zestimate than the price he actually paid. Ironically, Trulia, the nation’s second most popular real estate website, (and now owned by Zillow), had an estimated automated valuation of $6 million at the time, for the $20M purchased home. That Trulia is not anywhere close to reality! If that weren’t enough, earlier in the year, Raskoff sold his Seattle home for $1.1 million. Embarrassingly enough, that house sold for roughly 40 percent less than Zillow’s Zestimate of $1.75 million. To his credit however, he did sell at a profi t, after purchasing the home for only $768,500.

Man vs Machine

It is clear that technology cannot replicate what a professional can do for true home valuations. More specifically, evaluating a home isn’t just about the statistics and data. There are many pieces to the equation, and it is often the intricacies¯that impact a potential suitor’s perception of a home. A home purchase remains fundamentally a personal determination and experience. People make decisions based on curb appeal, lighting, layout, decor and many other subtle factors. There was a recent statistic from a well-known real estate brokerage which stated that almost 90 percent of their transactions were influenced by the buyer’s emotions versus rationalization. Online valuations simply cannot take that into consideration. When utilizing either a CMA or an appraisal for a home purchase or to refinance a home, working with a knowledgeable and experienced local professional can help make or break a deal. Choose wisely.

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