Wednesday, January 10, 2018

A Good Home Valuation System Allows Users to Independently Test and Validate Appraised Values

Instead of blindly accepting some model-driven estimates from online brokerage sites (we all know those estimates are not explainable) or totally relying on salespeople's comps, prospective homebuyers MUST do their own validations at a Self-directed Site. A free Self-directed Site should allow users to go through the valuation process in a step-by-step manner via the following FOUR steps:

1. Defining the Subject:  Subject property data from Public Records is often unreliable. As a homeowner, you know your home better than any such records. In Self-directed Sites, you can define/enter your own home data, without being forced to accept the data from Public Records. Here is an example of the basic subject data that you would be entering into a Self-directed system...


(Click on the image to enlarge)

2. Selecting Comps:  A list of sales - by default - does not become comps; nor do some cute model-derived estimates provide true home values. Comps - however close they are to the subject - require proper selection and adjustments. In a good Self-directed Site you will be allowed to enter your own comp selection and adjustment criteria. Here is an example...




3. Selecting Final Five:  The concept of Spatial comps (picking comps right off the map) is always a better way to select the final five comps as it helps avoid picking comps from the "other side of the freeway" which could be an incompatible economic neighborhood, thus inflating/deflating the value of your subject. Here is an example...




4. Comps Grid & Value Analysis:  A good Self-directed site will offer a full range of statistically significant parameters including the percentile curve, rather  than just the average of the adjusted comps. Loosely speaking, 25th to 75th percentile range caters more effectively to the informed buyers, while 5th to 25th is more meaningful to investors and 75th and above is a potential companion for those bent on outbidding the competition. Here is a snapshot of a meaningful comps grid with line-item adjustments and final value analysis...




I picked the above graphics from Homequant.com as I own and operate it, to avoid having to deal with any copyright issues. My Homequant site is totally self-directed (no modeled values), totally free (no strings), and requires no login or registration whatsoever. Please choose the self-directed site that works best for you.

Note: All adjustments in Homequant are linear. In Automated Valuation Modeling (AVM), non-linear adjustments (due to the nature of their contributions) are generally used via non-linear regressions. If you are trying to learn AVM or understand how to make advanced non-linear adjustments to your model, please check out my recent book on AVM "An  Illustrated Guide to Automated Valuation Modeling (AVM) in Excel..." on Amazon.

http://www.homequant.com/

No comments:

Post a Comment