Comparison shopping - Appraisers, Web site and Realtors weigh in on property values
The Star-Ledger - March 10, 2006
SAM ALI STAR-LEDGER STAFF
1836 words
English (c) 2006 The Star-Ledger. All rights reserved.
Curious about how much your neighbor's house in Union is really worth?
Or that gorgeous mansion in Short Hills you drove by the other day?
Of course you are.
When it comes to property values - especially other people's property values - there is a bit of snoop in everyone.
You can scratch that itch with a visit to Zillow.com, a recently launched Web site promising to track home values for free. The site is generating serious buzz - especially here in New Jersey, where it is common for people to crash their neighbors' Sunday open houses just to gauge property values and get some decorating ideas.
Zillow, the brainchild of Richard Barton, the founder of online travel Web site Expedia.com, created such a frenzy when it debuted Feb. 8 that the company's Web servers repeatedly crashed trying to feed the mad rush of people trying to log on. It still doesn't work perfectly, but it is worth a visit for anyone with Internet access.
The site combines traditional and satellite image mapping with a vast array of housing data and analytical tools. But just how reliable and accurate are Zillow's "zestimates" - the word the company uses to describe the ballpark estimates it generates for the market price tag of homes?
The Star-Ledger took Zillow on a test run to see how it stacks up against certified real estate appraisers, Realtors and property tax assessors. The goal was to see if these numbers that everyone relies on to negotiate home sales and judge market trends would be about the same or scattered like so many errant golf balls.
The results may surprise you. No two numbers were exactly alike and in some cases, were off by a significant margin.
Two homeowners agreed to let their homes serve as test cases.
Ed Panek, 72, and his wife, Mary Ann, 70, moved into their 2,010-square-foot, three-bedroom home at 618 Bryant St., in Rahway, in 1999. The Paneks paid $175,000 for the property and think their house should be worth at least $400,000.
The other participant is a 70-year-old homeowner who lives at 1204 Birch St. in Boonton - the same 1,280-square-foot house his great-grandfather built in 1915. Today, he thinks it is worth about $500,000. ZILLOW.COM Zillow's zestimate for the Rahway home was $372,385.
The zestimate for the Boonton home was at $363,720.
HOW IT WORKS: Zillow computes its numbers by taking "zillions of data points," - all public information - and then entering them into a secret mathematical formula developed by its statisticians, said Amy Bohutinsky, Zillow's director of public relations.
Although a zestimate can't be used in place of an official appraisal, Zillow claims that in the majority of cases, its home valuations are within 10 percent of the actual selling price of the home.
PROS: The site enables you to chart the value of your home during a time frame of one year, five years and 10 years - much like you would track a stock - and compare its value with other homes on your street, town, county, state or country.
Homeowners can also refine their zestimates and factor in any home improvements they have completed or want to complete. For example, Zillow can tell you a $20,000 kitchen remodeling project will increase the Paneks' home value by about $19,000, to $383,688.
Armed with this knowledge, the homeowner can make a more educated decision on whether or not to proceed.
CONS: Unfortunately, for folks living in New Jersey - especially Essex County - Zillow is a big disappointment. In many cases, when you type in a New Jersey street address, this message pops up: "County transactional data for this home is insufficient so we cannot calculate a zestimate."
"A lot of counties in New Jersey do not record and report historical transactions of homes, so in many places, the only things we can get are tax assessments," Zillow's Bohutinsky said. "And tax assessments, as you know, are often quite a lot less than a home's real value."
When the site launched in beta testing mode in early February, Zillow was able to calculate zestimates for more than 40 million houses. There are 85 million homes in the United States, Bohutinsky said.
Since then, it has increased its data coverage to 46.5 million homes - so the site is still a work in progress. APPRAISED VALUE Rahway house: $405,000, according to Gerard Smith, the owner of Smith Appraisal in Rahway.
Boonton house: $370,000, according to Jacques Magliore Jr., an appraiser at Central State Appraisal Services, Lake Como.
HOW IT WORKS: Appraisals help both the lender and the buyer determine if the sales price is consistent with the actual value of the home. An appraisal can cost anywhere from $300 to $400.
Although the lender typically hires an appraiser to give the house, property and neighborhood the once-over, the loan applicant pays for this appraisal, indirectly, as part of closing costs.
Smith spent 45 minutes, tape measure and pocket-size 35mm camera in hand, scouring the property from top to bottom, and filing up a yellow legal-sized notebook with sketches and diagrams and notes. After the walk-through, Smith toured the neighborhood, paid a visit to the local tax assessor to get the property's official lot size and square footage and also compared local sales trends before returning his findings.
PROS: Generally, this is the only report a bank will consider when deciding whether or not to lend you money. The bank requires an appraisal because it wants to make sure the property will sell for at least the amount of money it is lending.
Under federal law, a borrower is entitled to a copy of the lender's appraisal before closing.
CONS: After Zillow debuted last month, Appraisal Institute, a Chicago-based trade group, issued a news release asking, "Would you trust such an important and life-changing decision to an Internet estimate?"
But appraisers aren't without their critics either. A 2005 study by October Research, a Richfield, Ohio-based research firm that specializes in real estate issues, shows nearly half of all appraisers report some pressure from lender and broker communities to overstate values by 10 percent.
The survey also found one-third of the 500 appraisers surveyed said they feared losing business if they didn't comply with request to inflate values. COMPARATIVE ANALYSIS Rahway house: Between $379,000 and $389,000, according to Joseph Ricci, a Realtor with Century 21 Norma Altman in Millburn.
Boonton house: Between $299,900 and $324,900, according to Lisa Tempesta, a Realtor with Burdorff Realtors ERA in Mountain Lakes.
HOW IT WORKS: A comparative market analysis is a real estate agent's evaluation, based on local listing and sales data, to determine the probable sale price of a property in the current market.
Ricci drove to the Paneks' home in Rahway expecting to list the house at $359,000 - until he walked inside. The Paneks had poured a lot of money into home improvements and the interior was extremely well-maintained. He said it was "like opening a present."
They had replaced the windows and refinished the hardwood floors. All the appliances were less than 3 years old. The furnace was 1 year old. The 40-gallon water heater was brand new.
Ricci was also concerned about the garage, which the previous owners had gutted and turned into a heated office space. Although Panek, a self-employed financial consultant, considered this feature a bonus, Ricci wasn't too sure how potential home buyers might react.
Meanwhile, in Boonton, Tempesta noted a number of red flags that would not sit well with potential home buyers when walking through the Birch Street home.
The kitchen was built in the 1950s. You had to sometimes kick the stove to get it to work. The bright green wall-to-wall carpet was old and would have to be removed. The pipes in the basement had asbestos on them and the water heater didn't work. The home had only one bathroom, and it was located on the second floor. And the homeowner had knocked a wall down between his bedroom and another bedroom upstairs to create one large space - effectively turning a three-bedroom house into a two-bedroom house.
PROS: The big advantage of comparative market analyses is they are free, whereas official appraisals cost several hundred dollars without any assurance they are more accurate.
CONS: Estimating a probable sale price based on comparative market analysis involves a certain amount of subjectivity - one reason experts suggest a home seller get at least three comparative market analyses. The task becomes even more challenging in neighborhoods, such as the ones in Rahway and Boonton, where there's a lot of variability in home size, style and condition. TAX ASSESSED VALUE Rahway house: $137,400, based on a revaluation performed in 1987. Land, $52,200, and home, $85,200.
Boonton house: $168,200, based on a revaluation performed in 1994. Land, $96,100, and home, $72,100.
HOW IT WORKS: A tax appraisal is a value estimation performed by the county of your residence to determine the fair market value of your property. The assessed value is used to determine your real estate property tax. The main difference between a tax appraisal and a property appraisal is timeliness. For example, in Rahway, where the last revaluation was performed 19 years ago, single-family houses are generally assessed at around 57 percent of their fair market value, said Smith, the Rahway appraiser. In Boonton, where homes were last revalued about 10 years ago, the average is about 62 percent.
INFO GRAPHIC: How much is this house worth? 618 Bryant St., Rahway The 2,010-square-foot house has three bedrooms and one and one-half baths; its windows are less than 5 years old, its roof less than 10 years old, and its siding is new. The basement is finished and used as a recreation room. The detached garage has been finished, heated and coverted into an office. The owners: Ed and MaryAnn Panek paid $175,000 for the home in June 1999. They guess it's worth about $400,000 today. They're pretty close.
The estimates: $405,000 Appraised value Gerard Smith, Smith Appraisal, Rahway $379,000-389,000 Potential sale price Joseph Ricci, CENTURY 21 Norma Altman, Millburn $372,385 Zillow.com $137,400 Tax assessed value (last assessed in 1987)