When we discuss property values with our clients, we provide data with several different goals in mind. Sometimes, our clients are just curious about overall market trends. At other times, buyers and sellers ask for a market analysis to determine a price when they buy or sell.
We always suggest deciding to buy or sell based on life goals, not on price. But we can discuss that philosophy at a later date.
All of the reports we provide serve a different purpose than a bank appraisal or tax assessment conducted by the local county tax assessor office. Consumers frequently look for a source that will give them the gold standard on property value that they can depend on, and there simply is no one price that can be used to ascertain value. Real Estate isn’t like a stock; there is no one price at the end of the day like there is for IBM.
Following is a quick summary of the various reports a property owner or purchaser may be exposed to during a purchase, sale, or tenure as a property owner.
Annual Review:
Every January, we provide an annual review for our past clients and friends. An annual review is a report of the recent sales and trends in the subject property area. This report is similar to the one a wealth advisor would give their client: an annual snapshot of the market's health in the area where you own property. We do not give our opinion of value when we do an annual review; it is more of a broad measure of the market in the area around the property.
If you are interested in an annual review but are not a past client, please contact us; we enjoy being of service.
CMA - Comparable Market Analysis
This is a report of the area directly near a subject property that a client is considering buying or selling. When pulling the data for this report, we focus on properties with similar characteristics.
Same elementary school, single story vs. two-story, square footage +/- 10-20%.
A market analysis is less specific than a bank appraisal as it covers the general area.
With a CMA, we show the clients properties that have sold, are under contract, and are currently on the market. As the market moves, the available properties give us insight into the market's direction. For example, if the sold comparables indicate a higher price than the available comparables, this gives us insight into the market prices going down. Likewise, in a quickly appreciating market such as 2021, we would track the homes recently placed under contract to tell us how quickly the pricing in the area was going up.
With CMAs, closed data tells us where the market is coming from, while pending and available homes tell us what direction the market is going.
It is important to remember that there is no one correct price when purchasing. Of course, if a client has a budget, that has to take precedence, but no single price makes sense when purchasing, so it should be considered an acceptable range.
For example, when I purchased my first home in 2000, I paid $335,000. At the time, the correct price range (in my opinion) was somewhere from $300,000 to $325,000, but I also knew there were other offers, and I wanted this house specifically. I knew that I could only optimize on a certain number of variables: size, location, large lot, and look of the home (I love bungalows with wood floors), and if I waited to optimize the price exactly, I would miss an opportunity. Two years later, when I refinanced this premium that I paid over the $325,000 top of the range, it did not matter at all, and then 14 years later, when I sold the property for $605,000 it really did not matter.
Appraisal
An appraisal is conducted by an appraiser licensed in the state of Texas. Frequently, this is referred to as a bank appraisal since the lender generally requires an appraisal before the buyer can complete the purchase or refinance of a property.
An appraiser can state this on their report.
“This is an opinion of value....developed by a licensed appraiser under the Uniform Standards of Professional Appraisal Practice.”
An appraisal is specific to the subject property, with adjustments made to the house in relation to the comparable properties. A market analysis (CMA - above) is less specific to an individual property and summarizes what the market is like in a particular area.
An appraisal is not only completed for the benefit of a loan. An appraisal can be useful in the settlement of an estate to establish the cost basis of properties belonging to the deceased or to establish an acceptable value in the case of a divorce or divestiture of a partnership.
We have also suggested to clients with unique properties that an appraisal may be beneficial to them to establish a market value for listing the property for sale. Again, the caveat is that by definition, an appraisal looks at closed properties and only tells us where the market is coming from, not where the market is going. Remember that if the appraisal establishes a measurement of the home's square footage that is different than what the seller’s current understanding is this new measurement must be disclosed at the time of sale. The appraisal price does not have to be disclosed. However, the measurement does. You can read more here.
Market Watch - Monthly or weekly
When our buyers close on a property, we set them up with a market watch email that sends them available, pending, and closed properties in their geographical area every month from MLS. This helps our clients keep track of the values in the area around their property. I liken this to checking in on your stock prices once a month.
Our overall philosophy is that real estate is a long-term investment, and property owners should not worry about short-term movements in its pricing. In general, I advise avoiding purchasing real estate if the hold time will be less than 3-5 years.
Weekly market watch is something that we set up for our sellers to receive every Monday so that they can watch the competition. This is a way to watch the market for sellers who are thinking of selling in the year. While we are always happy to walk a client or prospective client through the data we see in the market at any point, we find that a well-informed property owner understands the pricing in their area. Again, we love to provide this service. Please feel free to request a market watch at this link.
Tax Appraisal or assessed value
The county offices have a valuation process that assigns values to all real estate in the county. Their process is sometimes called a tax appraisal colloquially, but it has nothing to do with an appraisal completed by an appraiser licensed by the state of Texas. This can be confusing to consumers. In addition, the county value generally has little bearing on the actual price a property can sell for in the open market.
Yes, the county does have a value they refer to as market value, but this can be 10-15% different than where the property would sell. Don’t forget that the county is trying to maximize its tax base and is prejudiced towards higher values. In addition, certain groups of property owners are not incentivized to protest their taxes. Property owners with a homestead exemption and those with an over 65 exemption have very little reason to protest their property taxes, which can skew the data on these properties and neighboring properties.
I recently heard that a local credit union used the county value when ascertaining the value of a HELOC. I was extremely surprised by this, as county values in the industry are not considered accurate within 10%, and a bank appraisal costs less than $700. The only way this makes sense is if the credit union is planning on lending less than 50% of the property value; otherwise, the accuracy would concern me as a basis for lending.
Zillow Zestimate or other automated valuation systems
Most automated valuation tools are not accurate. Their accuracy is higher in areas where price per square foot is a more reliable metric, such as condominium buildings or new subdivisions. Price per square foot is not a reliable metric for pricing in areas of high land value or in areas developed more than 5 years ago. It is important to remember the motivations behind the services that provide you with these automated valuations. Zillow would like to represent you and give your contact information to one of their realtors; their only goal is to get consumers to follow them and use their app. They do not get compensated at all for providing you with accurate data.
As with everything in real estate, sometimes there is nuance that I may not have covered. Please feel free to reach out for a deeper conversation on all of this!
We are delighted to be your guides to Austin and Austin real estate!
Cheers,
Jen & the team
© 2024 Berbas Group. All rights reserved.
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