mortgage

Online 'appraisals' close but not perfect

Estimates, not full appraisals

Real estate Web sites may be tremendously helpful tools in estimating approximate values, but many in the industry feel they are not a replacement for traditional home appraisals. Public data can only tell so much about a home and cannot always factor in upgrades, additions or the general condition of the home, says Austin, Texas-based real estate appraiser Jim Amorin, current president of the Appraisal Institute, a professional standards organization. He says people should use the values found on these Web sites only as a "starting point" and never take them too seriously or use them in an actual transaction.

"I wouldn't base a serious real estate transaction based on them, and I would use that information cautiously and hire a local real estate appraiser to find what the true value of the home should be," says Amorin.

A full real estate appraisal usually is performed by a licensed and certified appraiser who visits the property and documents the attributes of the property, including square footage, number of bedrooms and bathrooms, and the condition of the property and lot. The appraiser will then value the home based on usually three comparable sales of similar properties. The appraiser factors in characteristics and elements that the home may or may not have in common with the comparables such as an attached garage, expanded lot size or swimming pool and then works up a fair market value based on those variables and recent comparable sales. Most importantly, Amorin says, a local appraiser knows the human buying and selling characteristics in the local market, something that databases and algorithms can't calculate.

"Appraisers are going to take a look at the neighbor's houses (too) and will have a better sense of the market pressures or the particular benefits of a neighborhood. Those are things that a computer model just can't always determine," says Amorin.

He points out that these Web sites can often have major inaccuracies because there is no human element. They rarely take into consideration the condition of the property, and Amorin says some counties often have unreliable and incorrect tax information. In 2007, a Wall Street Journal analysis of 1,000 recent home sales on Zillow found that the Web site's Zestimates are somewhat accurate with a little bit more than a 7 percent margin of error. In a third of the transactions studied by the Journal, Zillow came within 5 percent of the actual price. But in cases when Zillow is off, it can be way off: In 144 of the 1,000 transactions studied, the Zestimate was off by more than 25 percent.

These Web sites, "might give you a ballpark place to start the conversation, but the values can be way off. That quick access to information has sometimes given people a false sense of hope because the valuation may not be based on what is really happening in the market," says Amorin.

At Zillow, Bohutinsky agrees and says the Web site always recommends using Zestimates as a "starting point." She also says real estate Web sites create more transparency in the real estate market and allow consumers to become better informed before they meet with a professional. By reviewing values of neighboring homes and using comparables to calculate their own values, consumers will better understand the process when appraisers and Realtors enter the pictures. While almost anything can be bought online today, Bohutinsky says real estate will always require humans to interact as appraisers and agents. In the end, she says, Web sites such as these educate and empower consumers by providing information that wasn't always too accessible during the height of the housing boom.

"You might be able to argue that were there this level of transparency six or seven years ago, many people may not have found themselves in some of these situations where they didn't know what was happening," says Bohutinsky.

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