Austin Texas Home Value

As a practicing agent for the last 5 years in Austin, I’ve seen about 100 different ways that clients have tried to value homes. They range from taking the tax appraised value plus average appreciation for AUSTIN and then subtracting for the price of tea in China, to a detailed spreadsheet of Zillow data. The best advice that I can give buyers and sellers is to USE THE ACCEPTED PRACTICES FOR VALUING HOMES.

The Sales Comparison Approach to Home Valuation

Lenders use one of three ways to value your property. In most cases, there is one valuation method used for residential properties. The method most used and widely accepted is the sales comparison method. The sales comparison method is also known as the broker price opinion, comparative market analysis, and sales price comparison method. When a broker completes the analysis it is NOT an appraisal. When an appraiser uses the method in order to justify the sales price to the lender it is called an appraisal.

The Cost and Income Method to Valuation

The other two methods used are the cost method and income method. These methods are not commonly used for residential appraisals. The cost method means the appraiser is going to attempt to determine the value of the property by determining what it would cost to build the structure today. The income method is most commonly used for investment and commercial properties. The income method values the property related to how much the property produces in revenue. It allows the owner or buyer to value the future cash flow of the property versus the price of the property today.

Your Spreadsheets, Extrapolation, Interpolation, and Zillow Estimates

The reason that appraisals truly exist is not so much to validate your offer or make you feel good about how much you paid, but instead it’s to show the lender that they are not lending too much money on the property. When clients, be they buyer or sellers, create their own formulas, estimates, etc and attempt to use those to validate the market value of a home, the end result is almost a waste of time. The only numbers that really matter are, what the buyer is willing to pay, what the seller is willing to accept, and what the lender is willing to lend.

Why not Zillow, Trulia, HouseValues, your cousin’s girlfriend’s neighbor? I’ll tell ya why. Texas is a non-disclosure state. That means that sales prices are privy to buyers, sellers, agents, and brokers. The data that is recorded in Texas as public record is not the sales price, terms or concessions of a transaction. What is recorded here in Texas is the lien amount. That means the national websites that attempt to value your home are using a limited set of data often based on tax appraisals, which are not truly individually specific, and thus are inaccurate.

The fact of the matter is that homes all have some commodity-like attributes and some unique and hard to value features. The use of tax appraisal data, average appreciation rates, and general guidelines just don’t cut it. Tax values rarely take into account the location of the lot, configuration of the home, amenities, and often contain incorrect data. The commodity-like features of homes include square footage, number of beds and baths, and subdivision. The unique factors that influence a home’s value are the quality of construction, layout of the home, shape and topography of the lot, any lot features such as greenbelt, view, or stream.

What You DON’T Need To Know

The example that I often need to render to my clients is what if they bought gold at $100 per ounce and then gold shot up to $300 per ounce. Does that mean the gold is worth any less? No. Of course not. The amount the seller paid for the property is irrelevant to the market value of the home.

Another thing that is irrelevant to the market value of a home is it’s tax appraised value. I mentioned this above, but tax appraised values are seldom equal to market values for real estate. Again, tax appraisals are done with the mass appraisal approach. That means that the taxing authority will often take some recent sales data that they manage to acquire and value a few homes in a subdivision. They then split the value of the home into land and improvements. They use these samples to extrapolate the value of other homes. This is why the taxing authorities allow you to protest their estimates.

Lastly, what your friends, neighbors, and or acquaintances tell you that they sold their houses for may sound great, but often times I find that sometimes people exaggerate or leave out important details about the transaction when they convey their sales conquests to others that they want to think that they are financially savvy.

So What Should You Do?

Given the fact that lenders won’t take your spreadsheets, Zillow estimates, or your cousin’s word for the validation of the value of a home, you should always engage a real estate broker and appraiser to help you with your home valuation. Rather than spend your time creating a new valuation system for properties ask questions to your broker and appraiser as to why they think the home should be valued at a certain place. What adjustments are they making? How much are they adjusting for a given feature? What about market condition? You will be far better served by understanding the reasons for the valuation by accepted methods than trying to figure out what the owner paid and then offering based on that.