Property values can vary widely, especially in the Bay Area. To appraise your divorcing client’s home accurately, it’s helpful to know the difference between an appraisal, a CMA, and Zillow’s Zestimate value tool.
Here’s an overview of appraisal types, plus a few tips to keep in mind:
Appraisal: Performed by a certified appraiser, this official evaluation is the one required by most lenders before they will issue final approval of a buyer’s loan. It includes a physical measurement of the square footage of land and structures and sometimes includes permit and zoning research.
Comparable Market Analysis or CMA: This estimate, provided by a real estate agent, is primarily an assessment based on comparable properties and information found in the Multiple Listing Service (MLS). It may or may not include a cursory visual inspection of the property, and typically does not include measurements, permits or zoning research.
Automated Valuation Model or AVM (aka Zillow Zestimate, et al): Performed by an electronic algorithm, automated valuation models are based almost entirely on public information and comparables. Zestimates and other AVM products do not account for the actual condition of the property, zoning, or any past upgrades not listed on public record.
A few things to keep in mind:
1. Values are opinions: None of these figures are gospel. While an official appraisal is required by most banks, five different appraisals will result in five different values.
2. The more eccentric the property, the harder it is to pinpoint value: Every house is different but when a house is too unique to its neighborhood, it makes an accurate valuation much more challenging to achieve. If the home sits in a neighborhood that is very diverse in architectural style, size, or age, valuation will require a much more thorough analysis than will a cookie-cutter tract approach.
3. Appraisers and real estate agents look at homes through different lenses:
Home appraisers, by and large, are trained to work for the mortgage industry. Fannie Mae, Freddie Mac, FHA and VA have established very specific rules and guidelines that appraisers must adhere to.
Real estate agents, however, are not bound by lending regulations. Agents can include in their assessments the invisible neighborhood boundaries that either enhance or detract from a home’s desirability. For instance, an agent might adjust the value of a home because it’s “in the village” or “on the other side of the street.” They will also take into account the proximity of desirable school district boundaries and adjust for homes located in established tracts that were designed by sought-after architects or built by respected builders.
While the appraiser is strictly assessing land and structure value, the agent’s CMA includes nuances extracted from their familiarity with the community. There are no line-items on an appraisal for these distinctions but they do have intrinsic value to buyers.
4. Don’t settle for a sight-unseen valuation: Value is largely determined by the interior condition of a property. I have been in hundreds of homes throughout my career, and I can tell you that it is costly to judge a book by its cover.
Many outwardly beautiful homes have significant plumbing issues or structural damage, as well as filthy carpet, inoperable appliances, abandoned remodel projects, cracked pools, and dead landscaping. Some properties even house hoarders.
On the other hand, some homes are carefully maintained and appointed with imported wood or marble, extensive home automation systems, and premium appliances and fixtures that aren’t noted in public records. Because unique property characteristics can affect a home’s value by tens of thousands of dollars, it can be careless to work from an AVM. A home’s true value should be determined by a third-party professional inspection of both the interior and exterior of the home.
When you request a CMA from a real estate agent, be sure to specify that you are looking for the agent’s professional opinion of the home’s actual value in the current market, not just the suggested list price. Since your client’s home is likely the most valuable asset in his or her divorce case—and the proceeds may be used to fund the divorce, pay off joint debt, and start new lives—it’s crucial to invest in getting as close to the home’s accurate value as possible.
If you need a professional assessment of your client’s property, contact me for a thorough analysis that includes a visual inspection. If you prefer a rough estimate without a visual inspection, I can help with that too.