 A quick internet search will reveal dozens of automated valuation modeling (AVM) sites that promise to tell you how much your home is worth. These AVMs use statistical modeling techniques that “value” your home by comparing it with the price of similar-sized homes that have recently sold in your area. Using proprietary software, AVMs crunch publicly available numbers from the multiple listings service and combine this with regional pricing trends to set a sale price for your home. Enter an address and up pops a value. So why does anyone need a real estate agent?
Because AVMs Get It Wrong Most AVMs admit that valuations may be off by as much as 5%, but the actual price discrepancies could be as high as 20%. So anyone relying on AVM could be seriously under- or overpricing their home. Old data accounts for some of the error. Because AVMs rely on public sales data, there can be a two- or three-month lag between a sale closing and the data hitting the AVM. This time delay distorts the price. What’s more, AVMs do not take into account the condition of your property or the condition of the comparable properties that make up its data stock. The fact is, no two homes are alike. Statistical modeling does not account for your home’s inlaid marble floors or state-of-the-art kitchen. Software cannot see these things, so it assumes that every home is in average condition. This does not reflect reality, so the valuation comes out wrong. The Alternative: A Comparative Market Analysis Real estate agents are trained to prepare a comparative market analysis, or CMA, for every home listed for sale. This involves a physical inspection of the subject property and local knowledge, which combine to give a valuation range. Note the word “range”: CMAs do not, as some people expect, ascribe a single sales price to a property. Rather, they specify the range of prices that the property could achieve on sale, depending on how quickly the seller wants to achieve that sale and other factors. Preparing a CMA is an art, not a science. There’s no one-size-fits-all. Quality CMAs require thorough knowledge of the dynamics of property sales in a specific neighborhood. The agent makes judgments based on their understanding of the local market and the dozens of peculiarities that affect price, such as lot size; lot orientation; tax assessed value; and features of the lot, including its terrain, access and privacy, improvements and additions, condition, quality, and age. Every home is unique and must be valued accordingly.
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 Today’s housing market is very different from the 2008 housing crisis. At the NAR Real Estate Forecast Summit, NAR Chief Economist Lawrence Yun highlighted the four key reasons why home prices are expected to remain steady in 2023.
Job Market During the last recession, 8 million jobs were lost in just one year. However, in the current labor market, there hasn’t been a lot of job losses. While layoffs in the technology and mortgage industries have been making headlines, there has not been enough of an accumulation to form a net job loss, according to Yun. Subprime Mortgages Back in 2008, subprime loans were quite common. The abundance of subprime loans—loans offered to buyers with poor credit—contributed to the housing bust. Yet in today’s market, subprime loans are nearly nonexistent. Nationwide Housing Shortage In today’s market, only 4.6 million new homes are being constructed. For the past decade, the housing market has experienced a severe lack of inventory, due in part to underproduction in the new-home sector. Low inventory levels have led to increases in home prices, a trend that is expected to continue. Foreclosures During the last housing crash, many homeowners had to walk away from their loans as home prices collapsed. In today’s housing market, the percentage of homes in foreclosure remains at historical lows—around 0.6%. What’s more, Yun predicts foreclosures to remain near these historical lows for the remainder of 2023. Though recent home sales have been slowing, the current housing market is quite different from that of 2008. Home prices remain elevated and inventory is low. As a result, according to Yun, “The chance of a price crash is very small due to the lack of supply.” |