patrick.net

What is the sq ft of the house, and what are the going price of similar houses in the neighborhood?
As for what they put in home repairs in the last 4 years, don't for get that remodeling has been a high retail mark up business for most the last 10 years.
What were the improvements, were they physical additions, or remodel and refurb jobs?
Most home improvement jobs are a lot cheaper now than 4 years ago.
You can get a marble counter now for 1,000 or so, they were at least 5 to 10K.
Labor is cheap now, especially construction labor.

What was the value of the house in in 1972 new, 1985 and 1999?

I would plot a line from three values and project what it would have been ignoring the bubble.
Then consider the work done in today's prices, and then consider the usage value from there.
What you spend is not always relate to the value it adds.

Fixing Curb appeal by adding a 5K landscape overhaul adds a lot more value, then spending 25K on a drop ceiling in the den with recessed lighting.

T'nounce has much more experience than I do and much more practical knowledge. I just wanted to offer what I've noticed on Zillow: they refer to public records and use their proprietary algorithms, but they are subject to the "garbage in garbage out" principle. For instance, my house is listed with 2 extra bedrooms (don't I WISH I had 5 bedrooms!!!) and two other houses on the street are listed with 5 beds, but one is the 5-bed plan and the other is a 4-bed home with a 1-bed mother-in-law unit out back. I think the values of imaginary bedrooms vs. a real bedroom vs. a possible rental unit should be very different, but we're all lumped in pretty much the same.

Interestingly, despite fairly uniform Zestimates of ~$250k in the neighborhood, a much nicer/newer/bigger house than mine has been sitting forlornly at $210k with no takers since January. (At least 4 homes are bank owned and just sitting vacant, not for sale, not rented, just sitting.) I'm inclined to believe Zillow needs a lot of improvement before you can really rely on it.

Answer to the original thread: they are total junk. Worthless generalized information that seems to make "experts" out of amateur real estate appraisers. A prime example that the internet, in many ways, is like junk fast food when it comes to knowledge.

I forgot to mention, house is about 1760 sq feet. It was a complete remodel. Floors, walls, lighting & fans, electrical, bathrooms, master bedroom, kitchen, new roof, HVAC, added an extra garage space. Originally the house was around 1450 sq/ft. They did a nice job on the remodel too, lots of nice details, new windows all the way around, etc. The yard needs a little work but it's not bad and it has automatic irrigation built in with good solid fences, etc. It was not a cheap remodel, that's for sure.

I don't really expect that the improvements increase the value that much. And this deal may fall through anyway, we're not sure yet but it would be nice to get a sense of what we should expect to offer on a house in the future. From what I can tell, the best way to do that is to go by what houses are selling for in the area right now. The problem is most of the houses that are selling are foreclosures, so it's hard to gauge exactly what the market will bear.

The impression I get is that, for the most part, the online estimators only give you a rough ballpark number only and even then they can be way off.

Nomograph says

RayAmerica says

the internet, in many ways, is like junk fast food when it comes to knowledge.

Kinda like AM talk radio. Care to SuperSize that, RayRay?
a4adam says

My wife and I bid on a short sale in Vacaville, CA.

Don’t waste your time on short sales. There are so many REO’s in that area that you should focus on them or regular, well priced sales.

That is the problem really. All the REOs we've looked at needed LOTS of work—more than we wanted to do. And in the area we want to buy, regular sales have been few and far between. The only houses we've seen that we liked were short sales. It wasn't by design that we chose a short sale. Regardless, this is the last short sale we bid on. I would rather continue to rent than bid on another short sale.

a4adam says

I forgot to mention, house is about 1760 sq feet. It was a complete remodel. Floors, walls, lighting & fans, electrical, bathrooms, master bedroom, kitchen, new roof, HVAC, added an extra garage space. Originally the house was around 1450 sq/ft. They did a nice job on the remodel too, lots of nice details, new windows all the way around, etc. The yard needs a little work but it’s not bad and it has automatic irrigation built in with good solid fences, etc. It was not a cheap remodel, that’s for sure.
I don’t really expect that the improvements increase the value that much. And this deal may fall through anyway, we’re not sure yet but it would be nice to get a sense of what we should expect to offer on a house in the future. From what I can tell, the best way to do that is to go by what houses are selling for in the area right now. The problem is most of the houses that are selling are foreclosures, so it’s hard to gauge exactly what the market will bear.
The impression I get is that, for the most part, the online estimators only give you a rough ballpark number only and even then they can be way off.

My theory is they dont have a way to determine what the price should be with so many REOs on the market. One REO might sell for 150,000 and another on the same block can sell for 250,000. And yet a regular sale is 350,000 on the same block. The one selling for 150,000 is in a bidding war, the one for 250,000 is a hunk of junk and the one for 350,000 is in great shape. I guess the only thing you can do is go look, there are alot of proprties that look sweet online and then you go look and find a termite dump. To me a termite dump for 250,000 has way less value than a 350,000 nice house but some others welcome the cheap price and can make all the repairs

To a first approximation, Maintenance on your home *maintains* the value. It doesn't add. "Maintenance" comes from the word "maintain".

If someone spends $100 on new paint and such, it won't increase the value of the house, it just will keep the value of the house from falling because of its poor condition. So a new roof doesn't necessarily increase the value of the house, it just maintains the old value. (Assuming it is of equal quality to the original.)

That is why you really can't take statements like, "We just put $100,000 into this house." as meaning that the house appreciated $100k. It is in better condition, and therefore should sell for more than a house in poor condition. But money in might only bring it up to average condition.

Just something to keep in mind.

Short answer is 'no', Zillow and the like don't give you good information. There are two kinds of valid value appraisals -

1) The county assessor. However, people don't seem to understand that they calculate TAX value not MARKET value, although in CA with the ridiculousness of Prop 13, those two are roughly equal right around time of purchase. After that, they potentially diverge.

2) "Fee appraisers", which are the people you/the banks pay when you buy a house, to determine what you can borrow. I can tell you from experience they pretty much match the offered purchase price (what the buyer offered) in many cases - although you may have seen news recently especially in FLA where RE agents are complaining they are not matching market value (i.e. not just rubber stamping sales prices).

The online stuff and their 'proprietary algorithms' are really nothing new to professional appraisers, and I believe they are also suspect. I can tell you from first hand experience that tax assessors in most states already apply varying degrees of sophisticated 'algorithms' and have for many years. These involve varying numbers of characteristics (# bdrms, # baths, construction materials, age, quality of construction, lot size, etc etc.) and comparable sales. I have been at conferences where they have presented quite complicated methods of calculation (think math PhD's presenting m'more accurate valuation algorithms) but the old school appraisers will tell you more sophisticated equations don't in practice come out with a more accurate result. There is often or almost always some judgement on the part of the appraiser especially with atypical properties. Although in many States, the assessors do 'mass appraisal' which means it is nothing BUT the equation and no real judgement comes into play, that of course is again for TAX assessment, not MARKET assessment.

The truth is a house is worth what someone will pay. Calculating online can be useful IF they use something like the tried and true tax assessment equations plus comps, but it is only one data point. For example I would never take a Zillow report to a seller and say, "see, it's only worth this". As a seller I would laugh at you. There is no silver bullet, values change day to day based on market forces that cannot be fully calcuated. My advice is look around the area A LOT and look at what you can get for similar price - then make your offer accordingly.

mersenne says

That is why you really can’t take statements like, “We just put $100,000 into this house.” as meaning that the house appreciated $100k. It is in better condition, and therefore should sell for more than a house in poor condition. But money in might only bring it up to average condition.

It depends. If you're making repairs or replacing appliances with ones of equal quality, than you're not necessarily increasing the value of the house. If you're expanding (i.e. finishing the basement to add a family room) or upgrading the quality of the appliances/fixtures/cabinets, you will increase the value but not on a direct 1:1 ratio.

Zillow is out-of-whack, but closer than it used to be.
Get a property profile from a title company, it usually tells ya about the house and may have some comps. But it's a start, then you can research nearby sales to see what the value may be. But I agree with this statement 100%:

pkowen says

The truth is a house is worth what someone will pay

pkowen says

My advice is look around the area A LOT and look at what you can get for similar price - then make your offer accordingly.

Thanks for the info, this pretty much sums up my observations as well.

Too bad the short sale process is so jacked up, it's almost impossible to buy a house this way. The wife and I have decided if this one falls through, we'll probably wait until next year sometime and try again.

a4adam says

Too bad the short sale process is so jacked up, it’s almost impossible to buy a house this way. The wife and I have decided if this one falls through, we’ll probably wait until next year sometime and try again.

I agree a short sale is a problem to start with but if you got time it's possible make an offer. There is gonna be loan issues and multiple offers to screw it up for months.

Value is best determined by comparibles on the same street or block. Thats the only way you can price it.

The only thing I use Zillow for is to find out how many bedrooms and bathrooms the house has since that information was taken from the county records. I can't count the number of times I have showed up at an "open house" dog and pony shows only to walk around and see that there are 4 bedrooms and 3 bathrooms, but the county records on Zillow say that it's only a 3/2.......I confront the used house salesperson running the open house and tell them that this extra bedroom and bathroom are not permitted so they can't advertise it as such unless that is disclosed and an appraiser will never add that to the value of the house. Of course after I bring it to their attention they admit to this.......if there is no permit, it didn't happen and so that extra square footage and bathroom means nothing. I wouldn't touch a place with unpermitted bedrooms and bathrooms.

Nomograph says

Kinda like AM talk radio. Care to SuperSize that, RayRay?

It never ceases to amaze me how you seem to know so much about me. You've accused me in the past of being an avid watcher of Glenn Beck from whom I get all my talking points. After I pointed out to you the fact that I don't even own an idiot box and that I have never even seen Beck on TV, you at least backed off on that one. Now you're at it again. You assume I'm an avid AM talk radio junkie. This is typical behavior of the left. They compartmentalize everyone that disagrees with them into stereotypical little pigeon holes. In this case, because I am a conservative, I "MUST" be getting my ideas from AM talk radio. Wrong again. But if it makes you feel better, or superior, to think that all conservatives are stupid robots that have no ability to properly analyze an issue without being programmed by some talk show host, feel free. Fortunately for you this is still a free country where not only is ignorance allowed, it's celebrated, as you obviously could provide ample personal testimony and often do on this site.

a4adam ... short sales are a miserable way to go that should be avoided if possible. Typically, short sales take up to 6 months to complete. Your offer can be superseded by a subsequent offer at any time, or it can be turned down without even a counter offer after you’ve wasted about 3 months, etc.

I've purchased numerous properties over the years (bought my first when I turned 21) and have a lot of experience with rehabs, rentals, etc. On any property that you might be interested in that needs work, make sure you visit the property at least twice and take extensive notes on what needs to be done. Get advice from people you know and trust. Don't get caught up in the emotion of it but approach it from a business perspective. Take your list to the local box store and price out materials. On work you can't do yourself, get 3 estimates. Also, there are almost always a few surprises that were latent and you could not have known about. Even General Home Inspectors often miss these. Once you add up all the expenses, you will probably be amazed at how fast it all adds up, but at least you'll be able to make a wise decision. Pay particular attention to the foundation, roof (layers, any bowing, sags, etc.), HVAC, plumbing and electrical, siding & windows. Look for adequate ventilation and any signs of mold or mildew particularly in the attic area. Also, check out the lay of the land for proper drainage, etc. TALK TO THE NEIGHBORS and try to find out everything you can about the subject property, neighborhood, etc. Hope this helps.

All estimators are junk.

No one can predict the future value.

No, but they can estimate current value. :)

Online home value like zillow is an estimate, it is formula driven to try to estimate the millions of homes in America. Let's put that in context first.

Now if it is cookie cutter home and everyone's home is exactly the same, then it probably does a fairly good job estimating the home value based on a sequence of recent sales by size by sq ft.

We know not every home is the same, especially in San Francisco where records and data can be comparing apples and oranges. Information may be incorrect, or a market place a value on something that is not recognized, etc. that's just how it is, it is formula driven and it's not going to account for the nooks and nuance that is a premium or detriment in real life, that's where the appraiser's get paid to reconcile the difference.

Now where it does add value is if you zoom out a little bit, you can tell which areas are the premium and which areas are the dogs. When I look at houses, I look at the immediate choices and alternatives, the values and the incremental cost. Maybe all the house in this zip codes are in the 700's and 800's but the further in, it becomes 800's and 900's. That tells me there is a premium in one area vs. another and the approximation of that premium.

Nomograph says

That’s pretty obvious to everyone here. You just repeat what they tell you, word for word, without thinking for yourself.

You've been claiming all along to be a "Libertarian" which based on your posts never seemed to make any sense. I've just figured it out what you've meant all along. You've just been miss spelling it: you are a LIEbertarian. Please use the correct spelling from now on. Thank you.

a4adam says

I forgot to mention, house is about 1760 sq feet. It was a complete remodel. Floors, walls, lighting & fans, electrical, bathrooms, master bedroom, kitchen, new roof, HVAC, added an extra garage space. Originally the house was around 1450 sq/ft. They did a nice job on the remodel too, lots of nice details, new windows all the way around, etc. The yard needs a little work but it’s not bad and it has automatic irrigation built in with good solid fences, etc. It was not a cheap remodel, that’s for sure.
I don’t really expect that the improvements increase the value that much. And this deal may fall through anyway, we’re not sure yet but it would be nice to get a sense of what we should expect to offer on a house in the future. From what I can tell, the best way to do that is to go by what houses are selling for in the area right now. The problem is most of the houses that are selling are foreclosures, so it’s hard to gauge exactly what the market will bear.
The impression I get is that, for the most part, the online estimators only give you a rough ballpark number only and even then they can be way off.

Well if it was 1400 sqft, then it was probably a 2br, and they added a third bedroom. Sure that adds some value, but then don't forget, it's now the a big fish in a small pond. It's hard to speculate value on the oddball house out of the group, when most of the neighbors houses are smaller.

The house I bought has this same reality. It was a 2br house in a neighborhood of 2br houses. These were winter cottages for the snow birds, when they were built in the 50's-60's.
I paid 160K but offered 170K it appraised considerably lower so I got it for what it appraised.
The average sale price in my neighborhood has been 70-90K. Mainly because most of the houses are 900 sq ft, and small houses are harder to sell.
My house 2100 sqft, is one of the few houses in the whole neighborhood.
When real estate rebounds, I can only hope, that just because a 2100 sqft house sales in Hollywood Lakes or Hollywood Hills for 300K, that doesn't automatically make my house worth 300K. As North Central Hollywood is not either one of those neighborhoods.

I think 160-175K will be the magic number my house will still be worth in ten years.
Unless we all get a pay raise, to keep up with that imaginary inflation they keep talking about.

Comps and sales histories will get you in the neighborhood, but I wouldn't stop there. There are several basic metrics for arriving at the real value of a residence, (as opposed to going prices), including the type of land the house was built on, (clay, sandstone, etc), the size of the parcel, type of parcel, (corner property, greenbelt, right off the Interstate, etc), proximity to business centers/airports, flood histories, proximity to high power lines, processing facilities, any easements, etc. As for the structure itself; there's the obvious like sq footage and layout, but keep in mind the foundation type, insulation, roof type and any age-related issues, (wiring, plumbing, potential asbestos issues, foundational issues, etc). Then there's the abstract stuff, like is there an HOA, what's the primary demographic, number of streetlights, sidewalks, cut-through traffic, crime-stats, school districts, number of weekly rentals, (a burgeoning trend), etc.

I think the biggest problem with home value estimators is they do not take into account the condition of the properties. A 4 bedroom crack house has the same value as a remodeled 4 bedroom house in the same neighborhood. Having granite counter tops and titled floors is no more valuable than formica counter tops and linoleum floors. A larger house in a postal stamp sized lot is more valuable than smaller house on a larger property. Not to mention that the information they have is often incorrect and outdated. For my own house, it lists the exterior siding as wood and it's vinyl, and the square footage comes up as 3050 and it's more than 3,500. For the owners estimate, I entered the cost of the geothermal system as an improvement, and zillow for some reason deducts this amount from there value estimate. Improvements to a property should add to the value, not deduct from it. A smaller house in my town, on a smaller lot, that has the parkway in the backyard (major highway in the state) is more value than my house which is on a lonely country road, bigger lot, and more square footage. The main reason is probably because the square footage information for my house is clearly wrong, but also living within 200 feet of a super highway has no bearing of value estimates.

Anyone claiming these value estimators are total junk is just completely wrong.

They are very good for a laugh.

The estimator probably has some use though.

If you're wondering what other houses in the area are going for and how this compares, this will probably give you a good indication. It might not estimate what the house is worth exactly, but that house in average condition, should be priced at roughly this value.

Take the estimate and then work out what isn't ordinary about the place. Does it look like it's roughly in the same shape as surrounding houses? Are they renovated, but this one isn't? Is it a corner lot? Is it too close to a busy intersection? Does it have a bad foundation? etc etc.

At least they've done the basic footwork for you. Comparing lot sizes, house sizes, etc with comps in the area.

It could help a person make some snap judgments about places, to limit their searches.

It's one of many tools that you can use, but probably shouldn't be the only one. If the house is in moderate condition and everything seems reasonable with it, then the estimator is probably a lot more accurate. If it's been remodeled and/or has serious issues, it's likely quite far off.

This guy makes sense on appreciation, and home values. (For a Realtor)
His logic makes provisions for when values are unsustainable. Which is basic common sense for crying out loud(What was so hard for MILLIONS of people to get?)
He doesn't offer up provisions to bench mark values for correcting bubble prices.

I think it's safe to use these guidelines and ignore 2000-on ward, and mark your own trend.
That would put you in a prudent ball park.

Real Estate Appreciation.
Where was this guy in 2001?

Tenouncetrout says

Real Estate Appreciation.
Where was this guy in 2001?

thanks, pretty good article.

These guys where everywhere.

Just like today, they're everywhere.

In 2015, we'll be pointing to all the "correct" people.

Of course there is a correct person for every angle.

Only a few people can actually nail down what is likely to happen consistently. My favorite would be warren buffet.

pkennedy says

Only a few people can actually nail down what is likely to happen consistently. My favorite would be warren buffet.

Off-topic: Like Albert Einstein, Warren Buffet is a superhuman genius and a miserable human being.

http://www.nytimes.com/2010/08/01/fashion/01Undivorced.html

Mr. Buffett separated from his wife, Susan, in 1977 but remained married to her until her death in 2004. All the while, he lived with Astrid Menks; they married in 2006. The threesome remained close, even sending out holiday cards signed, “Warren, Susan and Astrid.”

Come up with your own system and make a checklist and follow that checklist for EVERY property. Proprietary algorthym's do not share how the number are determined which is ridiculous. Keep in mind REO's and the number of homes in the process of foreclosure in the neighborhood (i.e. pre-foreclosure/foreclosure/bank-owned).

Keep in mind the purchase price based on tax records as well.

I also agree with Austinhousingbubble

Comps and sales histories will get you in the neighborhood, but I wouldn’t stop there. There are several basic metrics for arriving at the real value of a residence, (as opposed to going prices), including the type of land the house was built on, (clay, sandstone, etc), the size of the parcel, type of parcel, (corner property, greenbelt, right off the Interstate, etc), proximity to business centers/airports, flood histories, proximity to high power lines, processing facilities, any easements, etc. As for the structure itself; there’s the obvious like sq footage and layout, but keep in mind the foundation type, insulation, roof type and any age-related issues, (wiring, plumbing, potential asbestos issues, foundational issues, etc). Then there’s the abstract stuff, like is there an HOA, what’s the primary demographic, number of streetlights, sidewalks, cut-through traffic, crime-stats, school districts, number of weekly rentals, (a burgeoning trend), etc.

@kronicade
It's a good way to toss out obviously over priced properties. And if they aren't over priced, then they're by far the most expensive property in a given area. I don't think you've got to get that accurate when pricing out a home, you need to figure out a ball park figure and then hire a real estate professional to get the best pricing for the property, and they'll show you what you need to watch out for. Good, being the key here, and not someone who is just giving you a number to support a bank loan.

@Cautious1
The story goes far deeper than that. His wife left him for someone else. They never did divorce, she found someone who would be able to help him out (Astrid), keeping him company and keeping the house running. After his wife passed away, he ended up marrying Astrid. His house keeping skills are obviously very lacking and I believe always where. He's definitely a man of routines, working with what he has. Albert Einstein was a very interesting figure, and I've also read quite a bit on his life. They are very different people. Snowball, Warren Buffets book is really fascinating. It has very little to do with investing but really shows the character side of Warren Buffet. Warren Buffet ends up coming across as a master of numbers and understanding business, while having far more limited skills in living it large. Einstein's latest book (I can't remember the name) was super fascinating and actually changed him from a more aloof human to one with some paparazzi skills.

@kronicade
It's a good way to toss out obviously over priced properties. And if they aren't over priced, then they're by far the most expensive property in a given area. I don't think you've got to get that accurate when pricing out a home, you need to figure out a ball park figure and then hire a real estate professional to get the best pricing for the property, and they'll show you what you need to watch out for. Good, being the key here, and not someone who is just giving you a number to support a bank loan.

@Cautious1
The story goes far deeper than that. His wife left him for someone else. They never did divorce, she found someone who would be able to help him out (Astrid), keeping him company and keeping the house running. After his wife passed away, he ended up marrying Astrid. His house keeping skills are obviously very lacking and I believe always where. He's definitely a man of routines, working with what he has. Albert Einstein was a very interesting figure, and I've also read quite a bit on his life. They are very different people. Snowball, Warren Buffets book is really fascinating. It has very little to do with investing but really shows the character side of Warren Buffet. Warren Buffet ends up coming across as a master of numbers and understanding business, while having far more limited skills in living it large. He also avoids the spot light but LOVES talking about numbers and will talk to anyone who will listen. Einstein's latest book (I can't remember the name) was super fascinating and I actually changed my views on him from a more aloof human to one with some paparazzi skills.

PKennedy, do you think Warren Buffet has Asperger's? Thank you for the additional details, I was under the impression he didn't want to divorce due to the division of property complications. Please forgive my off-topicality.

@Cautious1
Snowball is one of my favorite books. He's incredibly fascinating. The book really shows his entire life from childhood to current. His relationships, what he's learned and what he's done. No great details on deals, but lots of information on how he changed over time. From running a paper route when he was a child to buying old pinball machines and splitting proceeds 50/50 with owners of establishments that would let him run them there. He understood that these people could buy these machines themselves and keep 100%, so he kept good relations with them. He would take the pile of nickels split it evenly and tell the owner to pick whichever side he wanted. He brought in a friend that was good with fixing machines and split his profits with him. He ran a gas station and learned the hardway that gas is a commodity and that loyalty means a lot. He couldn't compete with the family business across the street. His early childhood business adventures are pretty impressive and intriguing. He's an incredibly fascinating guy.