Common myths of Real Estate Evaluations and Home Evaluation

Comparative Market Analysis Myths

Myth: Since the average home sells for 95%, I'll know I got a great deal when I buy a home for 85% of asking price.

Fact: Although knowing the average sales to list ratio in any given area is a useful benchmark, you should never rely on that statistic alone. Sellers ask way too much for their homes all the time! If you simply used a "shotgun approach" of only buying homes for "x" less than the asking price, you may as well play Russian roulette. The Colorado real estate market has been pretty stable, and sales to list ratios have been between 94%, and 97% pretty consistently for a long while, but that doesn't mean that a Colorado home with an asking price of $250,000 isn't worth $260,000, and conversely, there are plenty of homes that were asking $250,000 that only sold for $230,000...

The only way to get a "good deal" is to do your homework on a case-by-case basis, and write offers that prove to be a good investment after doing an appropriate amount of research. Automated Home Evaluator will help with that.

Myth: If Zillow.com says the house I'm buying is worth more than what the sellers are asking, the sellers have under priced their property.

Fact: Zillow.com is a wonderful resource, but they themselves only claim to be accurate within 10% of the home's value. (In fact, they seem to be a little closer to 8% in the Colorado real estate market.) The tricky part is that you don't know if Zillow's estimates are 10% high, or 10% low. Definitely use Zillow as a reference point, but don't hang your hat on that tool alone. It is said that you get out of something what you put into it – and Zillow.com takes only about 30 seconds of work.

Myth: I buy homes based on price per square foot because that is a far better indicator of a home's value than anything else.

Fact: Price per square foot is one of many useful indicators, but just as with everything else, it should never be relied on by itself – especially when most Colorado homes for sale vary so widely in price per square foot. Let's say you have two neighboring homes for sale; One has a basement, and is selling for $200 per square foot (House A). The other (House B) doesn't have a basement, and is selling for $185 per square foot and all other features are identical... There is no way "House B" is a better deal, but any buyer who relies on price per square foot alone wouldn't realize that. (Keep in mind, that most Colorado evaluators don't include basements in price per square foot calculations. Regardless, dozens of other "intangible" factors affect price per square foot such as views, condition, lot size, location, etc.)

Myth: When a home is priced under appraised value, it is a guaranteed good deal.

Fact: A home for sale in Colorado isn't necessarily a good value just because it is priced lower than a recent evaluation. In the case of a home for sale for "less than appraised value" those evaluations were usually done for refinance reasons. In that event, the sellers (borrowers) usually want the value to be as high as feasibly possible so they can borrow as much as possible at as low a rate as possible. Those type evaluations are typically worthless, and should not be relied on as an accurate estimate of the home's value.

Myth: I'm waiting for the market to bottom out before I buy so I get the best deal possible on my next home purchase.

Fact: No one has a good enough crystal ball to predict the real estate market with such accuracy. In fact, talk to anyone who has owned a home for a long period of time. They probably all thought they bought their home at the peak of the market, yet I bet 95% of them they fared pretty well. You stand more to lose by "sitting on the sidelines" while the market continues to climb than if you just take a deep breath, and "jump in". Your best bet is to buy a home that you know you can afford, and do your homework to make sure it's a good value given current market conditions. Automated Homefinder's free home evaluation tool can help with that.