How to use home valuations to connect with prospects and build your business
Using Homes.com Home Values to make connections and build business By Charles Warnock, Homes Media Solutions In recent years, as the housing market struggled through a mortgage meltdown and major recession, real estate technology has rocketed ahead. For most agents and brokers, technological innovations are interesting, but not really exciting until they impact the bottom line. One technology that hits home for many real estate pros is Automated Valuation Modeling (AVM) technology. Despite industry concerns and questions about the accuracy of AVMs, Web-based home valuation tools have proven popular with information-hungry consumers. And today, more real estate professionals seem to be accepting AVMs for what they are a useful starting point for property valuation and a way to streamline transactions. The implications of property valuations are huge because they influence how property decisions are made by buyers sellers owners managers investors lenders insurers Basically, property valuations influence all the players who make the multi-trillion-dollar world of residential real estate turn. But AVMs can be used for more than just home valuations. For savvy agents and brokers, AVMs are becoming an important marketing tool to begin the process of engaging prospects. What exactly is an AVM? AVMs are computer software programs that apply mathematical models to data to estimate property values. To determine a baseline value for a subject property, AVMs search thousands of property records for comparable sales, or recently sold similar homes. Depending on the available data, type of property and the condition of the property, AVMs may provide a fairly accurate property valuation. Although Zillow s Zestimate is probably the best-known example, there are more than a dozen major players in the AVM industry. In addition to brokers, mortgage lenders rely heavily on AVMs to verify individual property estimates and the value of properties held in investment portfolios Here are five ways to use AVMs to your advantage, and help build you bottom line: Page 1
1. Start a dialogue with AVMs Some agents freeze when buyers or sellers present them with an unrealistic AVM they have printed out from the Web. Some agents react by criticizing AVM technology and questioning its validity. But the more productive path is to use the AVM valuation estimate as a gateway to a more thorough market valuation by a licensed real estate professional with local expertise (that s you). Top agents continually look for ways to demonstrate expertise and position themselves as trusted advisors. Everyone has data. Consumers may have more data than you, but it doesn t matter. They will still turn to a full-service agent to help them understand the data and what it means to their real estate transaction. Be sure clients understand that the AVMs are: Just the starting point to a more comprehensive process One of several valuation methods, each with benefits and drawbacks An opinion of value that can be improved with adjustments Subject to value adjustments for a number of reasons Also used by banks and lenders to corroborate home values Dependent on current, accurate data to produce results Never binding inaccurate valuations are easily fixed In addition, it s important to note that the quality of AVM reports on the Web varies greatly. The AVM report your client provides may be fairly accurate or wildly off the mark. Since AVMs are only as good as their underlying data, large discrepancies are not uncommon in areas where highquality data is not available. To be proactive, some real estate professionals will check AVMs from several online sources for consistency. If the AVM valuations results are similar, they are likely to be a better starting point. If the range of value estimates is very broad, more investigation and adjustments are needed. 2. Help clients understand valuation methods AVMs are an important tool, but they are just one method of property valuation. If your clients become excited or upset about the results of an online AVM report, it s important to position yourself as a trusted advisor. Expert agents not only understand different property valuation methods, they also know the advantages and limitations of each. Providing some background on AVMs can help clients who get stuck on initial valuation estimates understand that they are at the starting point, not the finish line: Page 2
AVMs Though no property valuation system is perfect, AVMs can provide objective valuation estimates quickly and inexpensively. Plus, AVM technology is improving all the time. AVMs are an important tool, but they are just one method of property valuation. If your clients become excited or upset about the results of an online AVM report, it s important to position yourself as a trusted advisor. Expert agents not only understand different property valuation methods, they also know the advantages and limitations of each. Providing some background on AVMs can help clients who get stuck on initial valuation estimates understand that they are at the starting point, not the finish line: Advantages In the hands of an expert, can be used as an effective sales tool Advances in Automated Valuation Modeling technology make valuations more accurate Provide an immediate estimate of a home s value and local market Fast analysis of recent and historic price trends Useful for comparison and auditing purposes Avoid human factors that may be subjective Can streamline transactions by providing a starting point for valuations Limitations Like all methods, limited by timeliness and accuracy of data Cannot account for factors like location, views, proximity to a park or railroad tracks Cannot adjust values for property condition, improvements or individual tastes Do not account for current market news and factors Rely heavily on property records and require neighborhood information for context CMAs (Comparable Market Analysis) are performed by a licensed broker or agent. Typically, CMAs are used to estimate current market value to set a realistic selling price. Advantages Agents can choose appropriate comparables based on local knowledge Agents know how local news / trends affect pricing Typically no cost to consumers Opportunity to demonstrate pricing and marketing expertise Limitations Agents may have conflict of interest May be part of marketing pitch Like all methods, are subject to timeliness and accuracy of data Page 3
Appraisals are usually performed by a certified appraiser. Appraisers visit properties to document overall condition, home features, square footage, layout and quality of construction. Advantages Appraisers are trained and certified to assess value Physical inspection Understand financial impact of issues found Can make informed recommendations to correct issues found Can help with tax assessment appeals or PMI removal Limitations More expensive than some other options Typically take longer than AVM or CMA Other parties involved in transaction may try to influence evaluations All these valuation methods have their place, and all can provide useful information at various times in the transaction cycle. Estimating value is a combination of art and science. You can demonstrate your expertise to clients by helping them understand that regardless of the approach, the actual sale price is subject to the unique variables of each transaction: property condition, upgrades, market trends, circumstances of the sale and individual tastes. 3. Understand comparable properties Perhaps the most important part of estimating value is selecting appropriate comparables and understanding how they measure up to the subject property. Comparables should be nearby, so it s a good idea to drive by comparable sales and listed properties to see how they actually compare. After researching comparable sales and active listings, it s time for the personal touch. Sellers know their own property and neighborhood better than anyone, so they are able to help you adjust values according to individual property characteristics. Page 4
Buyer agents can also help their clients avoid overpaying for properties by using AVMs as part of the valuation process. As sophisticated as some AVMs have become, there is no substitute for a local expert. Knowing how nearby homes and neighborhoods compare will help you make adjustments to values and get more deals done. Why agents and automated valuations need each other One broker explained the need for the human touch in property valuation this way: Imagine two identical condos, same square footage, floor plan, appliances and amenities. One has a fabulous water view from the 25th floor. The second is on the first floor facing a dumpster. A computer doesn t know the difference in value but I do. Likewise, automated valuations can save agents and lenders a great deal of time by instantly providing a starting point to the valuation process. Finding and comparing comparables and calculating values manually would take much longer, with no guarantee of better results. Depending on your research and local knowledge, market adjustments will likely be warranted. If active listings are priced higher than your estimated value, home values could be rising and an upward adjustment may be appropriate. If offer prices are trending lower, a downward adjustment might be in order. In addition to property characteristics, AVMs evaluate how recently comparable sales took place and the distance from the property being evaluated. Once a base property value estimate is determined, it s time to check active listings to see what similar properties are selling for. In addition to sold properties, better-quality AVMs will account for distressed properties and broker-offered active listings to find the most comparable properties available. 4. Use AVMs to bring buyers and sellers together It s no secret that sellers want to sell high and buyers want to buy low. But buyers and sellers often arrive at the negotiating table with very different ideas on what constitutes a fair selling price. A fair and objective property valuation is a benchmark that helps buyers and sellers find common ground, and helps real estate professionals get deals done. It may help to remind both buyers and sellers that even the most objective estimates are still estimates, and the ideal of 100% accuracy is just that an ideal. In the end, a property is worth only what a buyer is willing to pay. But to help both buyers and sellers achieve their goals, both should agree on a fair and objective estimate of property value. Page 5
Sellers who overprice their properties initially may miss the higher level of interest new listings typically generate, leading to deeper price cuts down the road. Longer sales also increase the likelihood of a distressed sale if sellers become frustrated or encounter financial difficulties. Likewise, you can use valuation technology help buyers avoid emotional purchases. Overpaying due to falling in love with a home is common. In this case, AVMs can help establish an objective baseline for buyers and sellers so emotional purchases become the exception. You can also help bring buyers and sellers together with transparency. Showing them an initial valuation report with adjustments based on individual property characteristics and condition can help both parties agree on a fair selling price. 5. Follow through with a CMA CMAs have been an important part of the agent marketing toolkit for years, and with good reason they help move transactions along and provide a great way to connect with sellers and buyers. The transition from an online valuation to a more thorough CMA is a natural one, and provides agents with an opportunity to visit a seller s home for a one-on-one meeting. Delivering a CMA also helps agents demonstrate and explain: Local market knowledge and expertise Their ability to price the home correctly Their marketing resources and a realistic timeline Possible improvements and strategies for a quicker sale The steps associated with transaction process Transaction fees, commissions, taxes and other expenses Page 6
Price One of the best uses of a CMA is to help move a dialogue with sellers from pricing to the actual steps of marketing and preparing the home to sell quickly for the best possible price. Condition Marketing Price, Condition and Marketing are the three major levers agents can use to get properties sold. Starting with a home valuation and following through with a CMA guides your discussion with prospects through these three factors. After you establish your ability to price their home correctly, the discussions about preparing the home and reviewing your marketing plan naturally follow. High-quality CMAs allow agents to quickly add comparables including recent sales, pending sales, current listings and even FSBOs. A good CMA will also feature visual impact charts, maps and images that help sellers quickly understand key concepts in selling their home. CMAs should also enable agent and brokerage branding, along with personalization for the client. Power tip: Top agents keep in mind that sellers are often also buyers. To demonstrate high service levels, some agents will run a CMA on a for-sale property to help prospective buyers make better offers. Real estate industry tech innovations are driving change, and the pace of change is only accelerating. Like other changes which have rocked the brokerage world in the past few years, AVMs can be feared, ignored or used as a tool to win more business. Page 7
Are You Seeing the Value? Check out the Quick Tour of Homes.com s new Home Values online valuation estimator and start making new connections today!
Homes Valuation Quick Steps Quick Tour: Homes.com Home Values From the Homes.com main menu, click Home Values. Then, enter a street address, city or ZIP to start the valuation process. The bird s eye map shows an aerial view of the neighborhood, with the selected property highlighted. You can also select the Street View to see the property s curb appeal from the street. Page 9
Homes Valuation Quick Steps Since the online Home Valuation is just a starting point, there is a contact form beside the map that visitors can use to request a Professional Home Estimate from a Homes.com Agent Subscriber. It s a great way to connect with prospective home buyers. Since the online Home Valuation is just a starting point, there is a contact form beside the map that visitors can use to request a Professional Home Estimate from a Homes.com Agent Subscriber. It s a great way to connect with prospective home buyers. Page 10
Homes Valuation Quick Steps Visitors can easily share listing with their family, friends, or their real estate professional! Or, you can use this feature to share properties and valuation estimates with your clients! Visitors can easily share listing with their family, friends, or their real estate professional! Or, you can use this feature to share properties and valuation estimates with your clients! Visitors can see more information about the property they are viewing by clicking the View Details link. Page11
Homes Valuation Quick Steps Details include MLS information and value trends for the property and the surrounding area. Do you Q&A? Visitors can also submit questions to local real estate professionals in the Homes Questions and Answers Section. You can participate in Homes.com Q&A Community by setting up a Homes.com profile. If you have not created your free Homes.com profile, go to http://corporate.homes.com to take advantage of this opportunity to connect with prospects in your neighborhood. Page 12