What Is Your Massachusetts Home Really Worth?
By Rich Vetstein
OK folks, you want to know what your house is worth? Stop obsessing
over your town assessment and online estimates. At the end of the day,
your house is worth what someone is willing to pay for it.
But while you follow the sale prices of your neighbor's house and
e-mail me to ask what your house is worth (sight unseen), I'll explain
to you that it is neither an exact science, a mathematical equation, or
a guesstimate. So many factors go into the value of your house. In
this case, perception is, for the most part - reality. The location,
the condition, the square footage, the updates, the amenities, the
lot, the neighborhood, the neighbors, proximity to school, the
floorplan - and so much more. Size matters, but it's not the only
thing.
It's so easy to want to use the two words interchangeably, but
please know that an assessment and an appraisal are totally different
things.
ASSESSMENTS: (Think - measurement rhymes with
assessment) Assessments are based upon the town's opinion of value of
the land and the value of your house, based on the measured square
footage and condition (excellent, very good, good, fair and poor). The
square footage includes everything in the house - closets, hallways,
two-story foyers, stairways, etc. So, although you may add up the
square footage from each room, it's not the same. The taxes you pay are
based on your assessment. Years ago, houses were priced close to, or
above, their assessed value. If a house were priced below the
assessment, it was featured as a fabulous thing. Priced WAY BELOW
assessment, translated, meant: "Don't forget your checkbook as you're
running like a madman to the open house."
These days, assessments may be in the general vicinity of the asking
price. Not a lot of weight is placed on the assessed value as it
compares to the true market value. Most are priced around the assessed
value, especially if they sold in the past 10 years. The assessor's
office does not take into account all of the items within a house that a
buyer perceives as valuable (age of systems, paint vs. 1970s
wallpaper, neighborhood full of kids the same age, master bathroom
rivaling the one at the Four Seasons in Nevis, etc.) Just the square
footage, value of the land and the town's rating of the neighborhood.
APPRAISALS: An appraisal is a valuation made
mathematically by a real estate appraiser for the purposes of providing
security to the lending institution. The bank wants to be sure that
the money it is loaning - for a refinance, home equity loan, line of
credit or a purchase - can be recouped in today's market if the owner
defaults on the loan. Essentially, they need to know that they would
not have a problem selling the house for the amount borrowed.
The appraiser formulates his/her appraisal based on the sale prices
of the houses nearby that would be comparable for the square footage,
the amenities, and the condition. In some towns, it's not necessarily
apples to apples, because a house down the street may have been
foreclosed upon, thus skewing the value of the subject property.
Appraisals used to be more of a formality, and now they are extremely
strict. As a result of the mortgage debacle, banks have cracked down
and the rules have changed. Banks used to be able to communicate with
the appraisers - now they have been prohibited from having direct communication.
If you have recently refinanced and your appraisal came in at one
price, it doesn't necessarily mean that that price is what you would
get from a buyer if your house went on the market.
ZESTIMATES: I think Zillow
is an entertaining and somewhat informative website. It is a great site
to search for homes and to take advantage of all of the interactive
features. The "Zestimate" is Zillow.com's term for "estimate of the
value of your house." For houses in Middlesex County, Zillow states that
its accuracy is 99 % of the homes in Middlesex County that are on
Zillow. Ninety-nine percent of homes in Sudbury are on Zillow.
Ninety-nine percent of those have "Zestimates." Of that 99%, only 32%
sold within 5% of their Zestimate. Fifty-eight percent sold within 10%
of its Zestimate and 82% sold within 20% of its Zestimate. Median
error is 8.3%.
Dizzy? This means that if your Zestimate is $800,000, your sale price
may be closer to $640,000 or $960,000. It's a pretty big spread! So,
fun site - yes. Accurate - not really. Why? The information pulled by
Zillow is information that is available online - and if one piece of
data is incorrect (it happens all the time) then everything is skewed.
Zillow does not know what streets are busy, what houses have just
updated their kitchen and bathrooms, furnaces, roofs, etc. Zillow also
does not know the motivation of sellers. So, if your neighbors won the
lottery and just wanted to sell the house so they could sail around
the world and sold for about $50K less than they could have -
according to Zillow, your house just went down $50K, also.
Unless he or she has a really good sense of humor, please don't tell
your real estate agent that you disagree with his/her extensive
analysis because your "Zestimate" states "X." It would be like telling
Todd English that you know how to make his signature dish because you
just Googled the recipe. So, enjoy the site, have fun searching,
reading the real estate news, etc., but don't get excited or freak out
because of your Zestimate. It will likely change the next time you log
on.
COMPARATIVE MARKET ANALYSIS: This is the best, and
most accurate, way to know the value of your house. A comparative
market analysis is written by a real estate agent. It would best
completed by an agent who knows the market, knows each house that
your's would be compared to, and has his/her hand on the pulse of the
buyers. A real estate agent preparing the market analysis should take
into account everything about your house - the square footage, the
condition, the style, the location, the demographic of the potential
buyers, the market conditions, the intangibles, and the perceived value
within the town.
We then analyze the house in comparison with the houses that are on
the market, have accepted offers, are under agreement and have sold
(closed). A market analysis conducted today would not include sales
from the spring as it was a different market. It's also very important
to have a sense of what comparables appraisers will use when appraising
the house for the buyer's mortgage company.
So, assessments (pain in the assessment = taxes), appraisals (think =
approximate), Zestimates (Zillow.com), market analysis (call me/real
estate agent).
View more from The Massachusetts Real Estate Law Blog
Mr. Vetstein has represented clients in hundreds of lawsuits and
disputes involving business, real estate, construction, condominium,
zoning, environmental, banking and financial services, employment, and
personal injury law.
In real estate matters, Mr. Vetstein handles residential and
commercial transactions and closings. In land use, zoning, and
licensing matters, Mr. Vetstein offers his clients an inside
perspective as a former board member of the Sudbury Zoning Board of
Appeals. Mr. Vetstein has an active real estate litigation practice, and
was a former outside claims counsel for a national title company.
Drawing on his own business degree and experience, Mr. Vetstein
assists his business clients with new business start ups, acquisitions,
sales, contract, employment issues, trademarks, and succession
planning. Mr. Vetstein also litigates, arbitrates and mediates a wide
variety of commercial disputes.