Sales compared to Valuation Models

Consumers rarely see comparisons between sales prices and alternative valuation models accessible via the web. I’ve not seen an actual comparison to recent closed sales to these models and thought it would be an interesting exercise to see how they stack up with properties that closed within the past couple of weeks through my local MLS.

The following data is a compilation of 21 recent sales in the Ann Arbor school district that closed in mid to late December 2013. These houses were exposed through the local MLS and picked up by a variety of different valuation models. Since these houses were exposed on the open market, my thinking was the models would be fairly accurate, but nothing seems to be further from the truth! 

The value estimates are all over the board as far as too high, or too low, with only a few exceptions.

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The sales above are sorted by sales price. To help you read this chart, the layout flows as follows: zip code and some comments about the property. The next column is the actual sales price, followed by a valuation model, followed by the percent difference between valuation model and sales price. For example, on the first sale, the sales price was $80,000 and the first estimate was $104,654 or 30.82% over-estimated compared to the sales price. There are a total of four different models used as well as the State Equalized Value from the tax roll (multiplied times two as is practice in Michigan). 

Upon review, the lower priced sales were over-estimated and the higher priced sales were under-estimated, but even standard subdivision houses that were exposed through the MLS had discrepancies in the variance. This was unexpected as they were on the market, in homogeneous areas, and not in need of work, so why did the models fail?

In my opinion, the models fail because the market is simply not perfect and can’t easily be measured by pure statistics. Value really relates to a specific market segment, buyer preferences, condition (that can’t be measured by computer model) and locational nuances.

Instead of either overpricing a property based on potentially erroneous information in these models, or leaving money on the table by underpricing; hire a local appraiser to provide you an expert analysis of the market and where your property fits within it.

Rachel Massey, SRA is a local expert with close to 30-years of experience in and around the Ann Arbor area. She can be reached at 734-761-3065 or through email (rachmass@comcast.net) or through her website at www.annarborappraisal.com. Rachel is available to help you with your appraisal needs for divorce, estate, tax appeal, bankruptcy, etc.

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