It used to be that buyers would pay any price for a home, but that is just not the case anymore. That was 2012 and 2013. By the end of 2013, properties in Orange County had realized substantial appreciation. Values were no longer a “deal,” so buyers were unwilling to pay much more than the last sale. They honed in on the Fair Market Value for a home.
A homeowner last week contacted me after reading the 2015 forecast and asked “How do you determine the Fair Market Value?” He wanted to know if the printout that he had received in the mail which highlighted the lowest value, highest value, and then a recommended value was adequate in establishing his home’s Fair Market Value. The answer was “no.” There is not a computer program or website out there that can really provide an accurate assessment of what a home is worth.
Zillow, the top real estate website on the web, has their infamous “Zestimate®,” an estimation of market value “computed using a proprietary formula.” Drill down a little deeper and its inaccuracy is eye opening. For Orange County, only 43% of all closed sales were within 5% of the home’s Zestimate®. That means that 57% were off by more than 5%. 70% were within 10%, meaning that 30% were off by more than 10%. And, 88% were within 20% of the home’s Zestimage®, which still leaves 12% that were off by more than 20%. As an economist, the errors are way too large to overlook. On the site’s accuracy page they even admit that this tool should only be used as a “starting point” in determining value. The bottom line, you cannot establish a home’s Fair Market Value if you are a buyer or seller simply by pointing your web browser to the most popular real estate site on the Net.
Who can sellers rely on to determine a home’s value? The answer is simple, their REALTOR®. It sounds easy, but most sellers ignore data, facts, and the professionals they hire to sell their home when they initially come on the market. After sitting on the market for some time, many sellers come to the realization that it’s their price that has prevented them from realizing their goal in selling. For some, it takes several price reduction before they arrive at a value where they are able to successfully sell. Still, others just don’t get it. They point the finger at the marketing for their home, the lack of advertising, and that their real estate agent is just not doing enough. Yet, the problem is really that they are focusing on a price that they want to get for their home rather than the price that the market is able to bear.
How is value then determined? After carefully considering all of the most recent closed and pending sales, and then scrutinizing a home’s amenities, upgrades, condition, and location, one is able to ascertain a home’s real Fair Market Value. This is not a simple process. If it were, 95% of all sales would be within 5% of a home’s Zestimate® and not 43%. For REALTORS®, it is their profession. It is what they do for a living. They help determine a home’s value by knowing the data and comparable properties that must be factored. They are the experts and have the capacity to meticulously weight all of the components that are used to establish value.
Active Inventory: The inventory rose 3% in the past two weeks.
It’s winter and over 70 degrees. No wonder the Winter Market in Southern California is so short. Sellers are already coming on the market in anticipation of the Spring Market, which typically starts right after the Super Bowl. We don’t have snow, ice, sleet and very much rain. Instead, we are known for our blue skies and ideal weather for finding a home. So, while the rest of the country still hasn’t thawed out, our Spring Market comes early.
As more sellers hit the market running to take advantage of the busiest time of the year in terms of sales, expect the inventory to continue to blossom. Many of these homeowners will stagnate on the market as they overzealously approach pricing. Thus, the active inventory will build and buyers will have more choices.
In the past two weeks, the active listing increased by 255 homes and now totals 5,255, the largest increase since July. At this time last year, the inventory was at 5,077, 3% fewer than today.
