The Pitfalls of Zillow.com

If you are a potential home buyer or home seller, how would you start going about conducting research on the process? Would we go to the library and borrow some books? Maybe. Would we go to Barnes and Noble and pick up some real estate magazines? Possibly. How else might we start? Ok, lets stop kidding ourselves. When we have a question or want to dig up more information on a particular topic, whether it be real estate, automobiles, or the best new digital camera out there, we usually begin our research on Ol' Faithful, the trusty Internet, right?

The Internet is great for preliminary research on pretty much anything. We don't have to bother someone to get an answer on a particular issue. We can discreetly search for the latest YouTube video of that amazing scuba diving chimpanzee in our cubicle without the boss knowing. Thank God for the "Alt - Tab" feature! Furthermore, we can quickly find relevant research content by using the omnipotent Google.

We all know that the Internet isn't always the most accurate source of information. After all, most of what is on the web is generated by humans. To err is human, right? So we should take all information gathered on the Internet with a grain of salt. What percentage of the online contents that we encounter are accurate? 50 percent? 70 percent? How big of a percentage would we need to feel that we are working with very accurate information? 90 percent sounds pretty good, doesn't it?

Zillow.com is the Internets premier web based home valuation website. Buyers and Sellers come to this website to get estimates (Zestimates) on home values in particular neighborhoods. The estimates are based on tax records and multiple listing service data. It seems to have gotten so popular and seemingly credible that clients will argue with their agent about what a home's fair market value is based on information that they gathered from Zillow.com. These buyers and sellers may have valid arguments IF their data was based on accurate information. The truth is that Zillow has some very misleading information.

Did you know that in Monroe county 31% of these Zestimates are within 5% of the sale price? That means that 69% of Zestimates in Monroe county are at least 5% off from the actual sale price (the true market value indicator). Or even worse, in NY State only 18% of Zestimates are within 5% of the sale price! 25% within 5% on the national level. Where did I get these statistics? Zillow.com! Specifically:

http://www.zillow.com/howto/DataCoverageZestimateAccuracyNY.htm

If this site is so grossly inaccurate, then why do so many buyers and sellers count on it to get information related to buying their largest and most important asset? The most accurate way to calculate a home's value is a comparative market analysis or (CMA) completed by a local real estate professional, and in most cases it's free. If you are a seller, get a CMA completed by a few real estate brokers. This will give you the best representation of market value range. But take caution. There are some unethical tricks that some brokers perform.

Some agents will come in on their CMAs with an artificially high number. As sellers, we all know that we want to get the most money for our homes. Agents will take advantage of this desire and intentionally give you a high price that is not reflective of market value. They do this in order to get you, the home seller to list with them and not the competition (the ones with the more realistic estimates). This practice is so notorious in the real estate community that they have a name for it. It's called "buying the listing." After they get you to sign the contract with them for the inflated price, they beat you up on the price a week or two later to get it down to a more realistic level.

On the opposite side of the scale, there is the agent who will intentionally try to under price your listing. That sounds counter intuitive, doesn't it? If the agent wants to get more commission, wouldn't he want the house to sell for more money? The fact is that getting more money for a client's house involves more marketing; more advertising, greater exposure. Advertising is an expense on our income statement. Some people in our profession believe that expense... any expense is a bad thing; it hurts profits. So some agents will doctor a CMA to come in with an artificially low number, then under price your house so it sells in a couple of days. When it sells that quickly, they collect commission and do not have to advertise their clients property. But do not believe for a second that the agent doesn't believe in advertising, because this style of broker will usually spend the money that he/she saved by not advertising your house and invest it in self promotion advertising.

On another note, the home buyer should rely on their local buyer's agent to run CMAs on homes that may be of interest to them to come up with a reasonable purchase offer price. In any event, just remember that the most accurate real estate information is going to come from a local real estate practitioner, not a website proposing to give accurate data relating to home values. Home values cannot be calculated using tax records, satellite photos, or any other static metric or algorithm. For instance, would you watch a national weather syndicate to get your local up-to-the-minute weather? That's why local news and weather remain in business. Real Estate is a local phenomena, so you must rely on local people for the best information.

http://www.nyhomesgetsold.com

West Side 3rd Quarter Sales Stats

Below you will find the 3rd Quarter 2008 Sales statistics for the West side suburbs. Please note that this is Year over Year information. I believe that assessing performance on a quarterly basis gives a more accurate picture of what is actually going on. Monthly sales statistics for a specific area does not provide enough sampling to get an accurate statistic.

The field "months supply" refers to how many months we have of inventory assuming that no new homes come onto the market for sale. Months supply is based on the most recent quarter sales performance for a given area. Months supply is a good statistic to use in order to gauge where a market is trending. For example, a high months supply usually does not look good for a specific market's home prices. This data does not take account for markets within markets.

For example, it does not account for different price tiers. The $50-$100k market within Hilton may have a two month supply, but the $300-400k market may have a 20 months supply since there is quite a lot of high end construction going on in Hilton at this time. So please be careful when analyzing these numbers so that you do not come to false conclusions.

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4.5% for a Thirty Year Mortgage?

The smarty pants constituents of the Treasury and the Congress have come up with a new idea aimed at spurring up demand in order to stabilize home prices. They want to offer 4.5% fixed rate thirty year mortgages to home buyers.

If you are a homebuyer, this offer sounds pretty sexy doesn't it? Well what if you are a responsible homeowner who keeps current on your current and has no intention of moving in the next five years? Does this offer sound sexy to you if you do not stand to benefit?

Is it safe to assume that you might even become angry at the fact that your new next door neighbor could be graced with a 4.5% rate and you (the responsible homeowner) is locked into a 6.5% 30 year prison sentence? I know that I would be livid and even pissed... upon first impression.

The general public is greeting this idea with sour disdain and anger. You should see the blogs. People are spitting venom. Why should responsible homeowners who are not buying a house in the near future (the majority of Americans) be penalized and left out in the cold? I understand the objections, but let me offer an idea on how you will benefit if this measure is passed by the Treasury.

Quite simply, those who do not stand to benefit directly from a bought down 4.5% interest rate, do stand to benefit indirectly. For example, if there are more buyers in your real estate market because of this artificially low rate, don't you suppose that it could positively affect your homes value? Now although you do not get the sweet deal on the mortgage directly, you do have a stake in this, afterall you are a homeowner!

Another way that you stand to benefit is quite simply microeconomic effects. Are you generally better off if the economy in your town is doing well? Of course. Did you know that when someone buys a new home, 17% to 20% of the sold homes value is spent in the first year by the new homeowners. Hard to believe, right? When you start to break it down, it makes sense. First, you have the real estate companies commission, then mortgage fees, appraisals, inspections, new furniture, moving companies, homeowners insurance, the new dog, etc. This starts to add up fast and it greatly benefits the economy.

Now I would like to state my disagreement as to how the Treasury plans to pull this off. Paulson, Bernanke, and all the other muckity mucks are astounded at the fact that 10 year treasury bills have a yield of 2.65 percent which is really cheap. This allows the Treasury to borrow money at 2.65% and then lend it out at 4.5 %, therefore capturing a handsome profit. Sounds great, doesn't it? This idea scares the hell out of me.

First of all, what happens when interest rates go up during the holding period of these discounted debt instruments? Lets take a savings bond for example. Lets say you buy a $100 30 year savings bond at a 4.5% interest rate in December of 2008. You are very happy because 4.5% is a great rate to have on a government insured investment. Let's fast forward to July of 2011. Interest rates on 30 year savings bonds are now 8%. How does this effect the value of your hypothetical savings bond? It literally pulverizes its value. You still get the same interest payment, however the face value of the investment greatly diminishes. If you hold it for the entire 30 year period, you will not be materially affected for the most part. However, what if you need to liquidate it to honor a short term obligation, or any obligation at all?

Do you really think the Treasury will hold these discounted mortgages for the entire 30 period? My sources point to "NO." In light of the aforementioned, this would leave the Treasury exposed to unwarranted risk. Interest rates will go up dramatically when the economy recovers. I think this would be opening Pandora's box. Let me offer a different approach.

Instead of actually owning the mortgages, let the government subsidize the lower rate to the lending institution. Let the government essentially buy down the rate to the artificially low level. This approach would be very similar to the way corn subsidies are delivered to farmers in the US. For example, interest rates on conventional 30 year fixed mortgages are 5.37%. JP Morgan Chase funds the mortgage and receives 5.37% of the principal balance over 30 years. The homeowner involved in this mortgage pays 4.5% a year over thirty years. So who fills the 0.87% gap? Uncle Sam does! Considering that the Median Home Sale price in the US is $191,000, this would equate to a $1,661.7 subsidy per year, or $49,851 over the life of the loan. In 2007 there were about 5 million homes sold. So to sponsor a project such as this, it would cost the government approximately $250 billion dollars over the entire life of the loans. $250 billion is the cost involved if every single one of these 5 million buyers applied for this mortgage, got it, and held the house, and did not refinance for 30 years. The probability of this happening is slim to none. On average people move every five years or so.

Let me know your feedback on this opinion piece!

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3rd Quarter E. Monroe County Real Estate Sales Statistics

3rd Quarter Sales Statistics for Eastern Monroe County

Well, its that time of the year where we compile our quarter over quarter sales statistics for Q3. As you dissect these stats, you will notice that the Greater Rochester Area has had a fairly strong year in Real Estate, especially when you compare it to other markets on the national stage. The chart below illustrates just this. This chart compares our local market to the Standard and Poor’s Case-Shiller Home Price Index for all months dating back to January of 2007. Keep in mind that this is a month-to-month accumulation of percent values. This expresses the value deviation away from 0%. Furthermore, I would like to point out to you that by no means should you interpret this data as applying to your own personal home. Average home sale price in our area has actually increased approximately 5.6% since Jan. 2007. On the other hand, the largest twenty real estate markets across the US have witnessed a 22.3% decrease in value on average.

Not too shabby, eh? We have a pretty boring real estate market here in Upstate NY. However, boring isn’t always bad, as you can see here. Now, onto the main point of this article: Q3 Real Estate Sales Statistics for Eastern Monroe county suburbs. Before you start looking at these numbers, two things should be taken into mind:

1.) These are median home sale prices for Quarter 3 2007 and Quarter 3 2008. If you live in Pittsford and see the -20% in bold red letters, do not freak out. This does not mean that home prices are plummeting across the board. It means that the median of what sold in these two periods had a difference of 20%. It means that homebuyers bought less expensive homes in Q3 ’08 than they did in Q3 ‘07, capiche?

2.) In the table below, you will see the term Months Supply. Months Supply is defined as number of single-family homes sold per month in Q3 below number of single-family homes active on the market right now. This statistic is a good gauge as to how hot a given market is. A very low months supply indicates a shortage of inventory as it compares to its peers. Markets with a low months supply will usually tend to get offers closer to asking price. Please keep in mind that months supply is always a bit skewed for Q3 every year. The number of active properties on the market decreases substantially around this time of the year because of the Holidays.

If you compile all of these together, you have about a 1% decrease in median home sale price in these townships. In the grand scheme of things, prices have been fairly flat.










If you prefer a more visual representation of this data, I have included a chart below.


If you were to take a pulse of the real estate market right now in Rochester, you would find that there is a very large shortage of inventory. It seems as though uncertainty about the real estate market and the economy has kept many sellers from putting their home on the market. As a result, many brokers in my office including myself have found that buyers are having a difficult time finding suitable housing because there has not been a steady flow of inventory into the marketplace over the past few months. Inventory is so low in fact that I have resulted in searching for “For Sale by Owner” properties for my buyer clientele. If you compare the months supply of Q3 to last years market, the months supply was 9 months supply to 10 months supply on average. It is my opinion that we have some very serious pent up demand at this moment in time.

Q3 sales statistics for Western Monroe county suburbs will be released in the near future. Furthermore, if I have not included an analysis for your town or neighborhood, please feel free to contact us. We would be happy to perform a free custom market analysis for your home or neighborhood.

http://www.nyhomesgetsold.com