Tag: real estate

The Pitfalls of Automated Home Values: Why They Often Get it Wrong

In today’s digital age, homeowners and prospective buyers have easy access to a wealth of information regarding real estate. Automated home valuation tools like Zillow’s Zestimate have become increasingly popular for estimating property values. However, these tools are far from infallible and often generate inaccurate estimates.

Sadly, most real estate consumers don’t understand this, leading to overpricing of homes.

In this blog post, we will explore why automated home values are frequently wrong and shed light on the factors on which websites like Zillow base their Zestimates.

Lack of human oversight

One of the primary reasons why automated home values often miss the mark is the absence of human oversight. These valuation tools rely on algorithms and data-driven models to estimate property values, disregarding the subjective factors that can significantly impact a home’s worth.

Automated systems often overlook the home’s unique features, renovations, neighborhood dynamics, and local market conditions. Consequently, this leads to inaccurate estimates, as algorithms fail to capture the full complexity of the housing market.

Insufficient data accuracy and completeness

Automated home valuation tools rely on vast amounts of data to generate estimates. Websites like Zillow aggregate data from various sources, including public records, tax assessments, and previous sales data. However, the accuracy and completeness of this data are not always guaranteed.

The most reliable information comes from an area’s Multiple Listing Service, to which Zillow doesn’t subscribe. Instead, the company relies on information submitted by real estate agents across the country, but not all real estate agents advertise on Zillow. Therefore, the important stuff doesn’t make it into the automated home value.

Then, there are real estate agents (who are required by their MLS to update their listings on that platform within a certain time period) who aren’t held to the same stringent rules.

They often neglect to update listing information on automated home value websites, causing information to become outdated. There’s nothing more frustrating than finding your dream home for sale on Zillow only to learn that it sold a week ago.

Inability to account for unique features and upgrades

Automated valuation tools struggle to account for the unique features and upgrades that differentiate one property from another. This is something a professional appraiser will not miss, by the way.

They often rely on general characteristics of similar homes in the area, failing to consider specific details that can significantly impact a property’s value. Features like a remodeled kitchen, a swimming pool, or a picturesque view can dramatically affect a home’s worth but are challenging for automated systems to accurately assess. Consequently, these tools may undervalue or overvalue a property, leading to misleading estimates.

Ignoring local market dynamics

Real estate markets are dynamic and can vary significantly from one location to another. Automated valuation tools, however, often fail to consider the intricacies of local markets.

They rely on broader market trends and regional averages, which may not accurately reflect the nuances of a specific neighborhood or city. Factors like school district quality, nearby amenities, transportation infrastructure, and local economic conditions can all influence property values, but they are difficult for automated systems to incorporate.

Consequently, estimates may not align with the reality of the local market, leading to erroneous valuations.

Lack of contextual understanding

Another inherent limitation of automated home valuation tools is their inability to accurately comprehend a property’s context. They fail to consider subjective factors such as curb appeal, architectural style, and overall condition.

The emotional appeal of a property, which can significantly impact its value, is challenging for algorithms to gauge. On the other hand, human appraisers can and do, recognize and factor in these nuanced elements when determining a property’s worth, providing a more comprehensive and accurate assessment.

While automated home valuation tools offer convenience and quick estimates, they are prone to significant inaccuracies.

It is crucial for homeowners and prospective buyers to approach automated home values with caution and rely on them as a starting point rather than a definitive measure of a property’s worth. For a more accurate appraisal, engaging the services of a local real estate agent is important if you hope to obtain the most money possible for your home.

How pets can impact your home’s value

I once listed the home of a lovely woman who lived with the love-of-her-life, a young pit-bull, Jade.

Like most puppies, Jade had penchant for chewing – on EVERYTHING. My client came home from work one day to find her living room completely destroyed. The dog had torn the sofa to shreds – even the wood frame. The floor was a sea of shredded foam and chewed-up wood.

The dog had also taken a dislike to the baseboards and decided they had to go as well. Thankfully there were no showings that day and it took almost two weeks to get the unit back into showing condition (and a lock on the escape-artist dog’s crate).

Sure, this example is extreme, but pets damage homes, whether it’s the dark streak on a wall where they’ve rubbed themselves or cat urine in the carpet to even something as minor as hair everywhere. Pets can have a negative impact on your home’s value.

Other ways pets impact home value

Recently I read an interview with a Boston real estate agent who talked about selling a condo that belonged to a woman who owned multiple cats. It sold for $30,000 less than it should have because of the damage caused by her cats.

“When the damage is significant, however, a home could appraise at 2% to 5% less” than market value, appraiser Susan Martins-Phipps tells Beth DeCarbo at the Wall Street Journal.

Then there was an article in Business Insider that claims home values in a neighborhood with barking dogs are reduced between five and 10 percent. So not only might your pet bring down your home’s value, but your neighbor’s pets may impact it as well.

How to deal with existing and future impacts

Of course, you’ll need to repair pet damage before putting the home on the market. But you’ll also need to remove evidence of pets as well, such as hair, odors, stains, and pet paraphernalia, such as food dishes and litter boxes.

Urine in carpets is almost impossible to get out so you may want to think about replacing them. Painting the interior will get rid of rubbing marks on the walls and a lot of odor as well.

Here are a few other tips to ensure your home gives off a homey, not kennel vibes:

  • If pet odors are extra-heavy, consider hiring a professional to get rid of them.
  • Avoid the use of air fresheners, incense and scented candles. Certain scents can be turn-offs for some.
  • Keep your dog groomed during the marketing process.
  • Vacuum as often as possible.
  • Give your dog plenty of exercise and attention while the home is on the market. When he’s pooped out, he won’t be as likely to look for ways to beat boredom.
  • Don’t forget the backyard. If your pooch relieves herself there, you’ll need to ensure she hasn’t left any surprises for buyers who want to check out the area.

Finally, find a place to park the pets during showings. Ideally, that means removing them from the home. Park your pet at the groomer, drop it at the vet for a checkup, take it to doggie daycare, or hire a professional dog walker during showings and open houses.

Since it’s not always practical to remove the pet from the home, crate it, cover the crate with a blanket, and leave a note on the door that there are pets created in the room.

 

Is Seller Financing Right for You?

Being turned down for a mortgage is disheartening, especially if you’ve worked hard to get one.

But it doesn’t mean it’s the end of the line for your homeownership dream.

There are other options and one of them is seller, or owner, financing.

What is owner financing?

“Owner financing happens when a property’s seller finances the purchase for the buyer,” according to Jean Folger at Investopedia.com.

It differs from a bank loan in that the seller doesn’t provide cash to the buyer, but instead, extends credit.

Seller financed loans are typically short term. They are ideal for the buyer who has met challenges qualifying for a bank loan or meeting traditional credit score requirements.

The homeowner who owns his home free and clear is in the best position to offer financing. Those that still carry a mortgage typically need their existing lender’s permission to offer financing.

The challenge for the buyer seeking seller financing is finding a seller willing to help him out. Most sellers are reluctant to finance — less than 10 percent do – mainly because of the risk that the buyer will stop making loan payments. It is possible, however, to reduce the risk of default.

To get tips on how to reduce the risk, visit Nolo.com.

Then there are the legal and logistical hurdles to overcome. Combined, these challenges convince many sellers that financing the buyer is too much work.

If you need to get the home sold, however, it could turn out to be a blessing.

Benefits for sellers

The biggest benefit for homeowners is the sizable return on investment they realize with seller financing.

Borrowers who typically seek seller financing are considered a higher risk than others. Because of this, sellers commonly charge 8 or 9 percent interest on the credit extended, according to Michele Lerner at BankRate.com.

Offering financing is also beneficial in a buyer’s market, with lots of other homes on the market. It opens your home to a larger pool of buyers and may help sell the home quicker.

The seller is released from paying property taxes, homeowners insurance and maintenance expenses, according to Scott Steinberg at RocketMortgage.com.

Additional seller benefits include:

  • A faster closing than would be had during the traditional mortgage process.
  • No closing costs.
  • The possibility of selling the home as-is.
  • “Potential to earn better rates on the money that you raised from selling your home than you would from investing the money elsewhere,” suggests Folger.

Benefits for buyers

Seller financing can be a bonanza for buyers with less-than-perfect credit who can’t obtain financing from a traditional lender. Down payment requirements are typically lower as well.

The terms of the loan are negotiable so , while it is unlikely, it’s possible that the buyer may be able to get a better rate than what banks offer. Depending on how the loan is structured, buyers may also get the tax benefits of homeownership.

Types of seller financing

Sellers can choose from a variety of financing options and much of the choice will be based on the buyer’s financial situation. Here’s a quick look at a few of the more common types:

Assumable mortgage – This type of seller financing allows the buyer to take over the seller’s existing mortgage. Not all mortgages are assumable but VA loans and some FHA and conventional mortgages are. You’ll need the lender’s approval with this option.

Land contract — With a land contract, title isn’t conveyed to the buyer but she gets what is known as “equitable title,” a shared ownership until the loan is paid in full.

Lease option – This method allows the buyer to lease the home for a specified amount of time. The rent is typically higher than market rents and there is an upfront fee, akin to a security deposit, except the buyer will forfeit it should he decide not to purchase the home at the end of the lease.

The terms of a lease option are negotiable. This generally includes the length of lease, what portion of the rent is credited toward the purchase and the purchase price. For this reason, there is no standard lease option but numerous varieties.

The all-inclusive mortgage and junior mortgage are two other popular methods of providing seller financing. Ask your real estate attorney for details on these options.

Seller financing can be complicated for those not familiar with it. It is important that both the buyer and the seller obtain the services of a real estate agent.

Don’t hesitate to call us or your real estate attorney with any questions about seller financing.