Conjectures about property values are dangerous, whether they come from a real estate salesperson, neighbor, builder, or anyone else. Accurate valuations take real work. Valuations for high-value properties can go sideways for two reasons.
- Finding genuinely comparable properties isn't easy. Proximity is important to appraisers and automated valuation models (AVMs). However, in North Idaho, the best properties for comparison might not be in the same area, on the same lake, or even in the same county.
- Automated Valuation Models (AVMs) aren't trustworthy. AVMs rely on publicly available data about sold properties, including prices. But Idaho is one of six "non-disclosure" states. In Idaho, prices for sold properties are neither public nor published, and they are not provided to county assessors. This situation forces AVMs to rely solely on published offer prices.
Real estate salespeople usually use automation, at least in part. AVMs work well if there are many similar properties nearby that have sold recently. An algorithm pulls data—favoring proximity—and creates a draft valuation, usually called a Comparative Market Analysis (CMA). The CMA is only as valid as the data used for comparison. And there's the rub.
What's better? There are two options: a formal appraisal or a Broker's Price Opinion (BPO). A formal appraisal is crafted by a licensed appraiser. It's a rigorous and demanding process. Appraisals are trustworthy when the appraiser has experience with properties in the region, of the same type, and within the price range of the subject property. Appraisals of high-value properties in Idaho cost between $1,000 and $1,500 in most instances. To schedule and complete an appraisal takes about a month.
The second alternative is a BPO, a Broker's Price Opinion. Real Estate Brokers (not salespeople) are trained to use a process parallel to that used by a licensed appraiser. Only a broker is allowed to prepare a BPO. That is what we do for each property. It's not an automated process. It starts with the careful selection of comparable properties. Our BPOs typically include eight to twelve properties for comparison. Because the appraisal and BPO processes are parallel, the results are also parallel. For the last three properties we represented, the appraisals prepared matched our BPO valuations exactly.
Example: a "worst case" misfire. Six months ago, a waterfront property was valued by another real estate salesperson and us. We created a BPO, and the real estate salesperson used an AVM. The AVM found only three recent sales for comparison. All three were nearby, and all were waterfront. But that's all they had in common. Age, build quality, condition, winter access, linear feet of waterfront, square footage, privacy, view, outdoor features, and lakefront amenities weren't remotely comparable. Therefore, the sold prices ranged from barely $2 million to $6.5 million. The algorithm did the only thing it could. It simply calculated a midpoint, an average. And that yielded a valuation of $3.5 million. Unfortunately, that was half a million dollars and 15% too high. After that, the situation deteriorated further.
The salesperson invested no more effort in vetting the AVM result. The standard format and language from the AVM were obvious. The automated CMA wasn't questioned, challenged, or reviewed before it was presented to the property owners. The property owners then made a reasonable, rational decision: go with the highest valuation. As a result, the property attracted very little interest, which disappointed the owners. You deserve much better. And you can count on it from us.
