Challenges of Appraising Luxury Homes in La Jolla, Rancho Santa Fe, and Del Mar
Whether you’re buying or selling a luxury home, determining the “real” value of a home is very important. However, don’t look to internet or any other home valuation sites to find out the value. There is no question that statistical models play a critical role in contemporary life. Commerce, technology, and science as we know it would not be possible without them. But statistical models have limitations, especially when it comes to the unusual or unique. The more singular the item, the more likely it will fall outside a model’s ability to make accurate predictions, and homes valued over $2 million are a prime example.
Ignore Online Estimates
Automatic Valuation Models, or AVMs, run on data. The more data, the more accurate the model, but when it comes to homes valued over $2 million, there isn’t much data. According to Clinton Selfridge of Willis Allen Real Estate in Rancho Santa Fe, only 12 homes sold in the Covenant in all of 2009. No model can make accurate predictions with only 12 data points, and to make matters more difficult, six of the 12 properties that sold in the Covenant sold for less than $2 million, and only two homes sold for more than $5 million. While onlline AVMs might make reasonable predictions when it comes to neighborhoods of condominiums or tract homes where there are hundreds or even thousands of comparable properties, they are extremely inaccurate when it comes to the kind of unique properties that exist in La Jolla, Rancho Santa Fe, and Del Mar.
“When it comes to more expensive homes, I don’t even bother with Zillow,” says Jason Zilka of Precision Property Appraisals, also of Rancho Santa Fe. In addition to the overall lack of data, Zilka also questions the legitimacy of the data that does exist. AVMs are based on public records, which are not always accurate or up to date. An older home that appears on public records as three- or four- thousand square feet might in fact have a new addition that brings the total to five- or six- thousand square feet. It can take months or even years for public records to be updated, and at the same time, these records don’t include information about such things as quality of construction, views, or renovations, each of which can add significantly to the total value of a home.
Appraisals With the Human Touch
Agents and appraisers alike will tell you the best way to determine the value of your home is with a good old-fashioned appraisal, where an appraiser comes out to your house and inspects and photographs all the relevant features, from pools and tennis courts to views and outbuildings. Still, even when it comes to actual appraisals, as Lucy Kelts of Prudential California Realty points out, homeowners should beware. In addition to their inspection, appraisers must also rely on data, including public records and the Multiple Listing Service [MLS], in determining which homes to use as comparables for a subject. As appraisals are currently done, the appraiser never actually enters these “comp” homes. Common practice is to view and photograph comps from the street, but not only does this tell the appraiser nothing about the inside of the home, sometimes it’s not even possible to view the property from the street.
Many higher end homes are situated inside gated communities to which the appraiser has no access. Kelts cites an appraisal in which one of the comparables used for a client’s property was a home inside a gated community that had actually been torn down and entirely rebuilt. Unknown to the appraiser, the price paid for property reflected only the cost of the land, resulting in a much lower value than should have been the case. An appraisal of a multimillion-dollar home can cost upwards of a $1000, and as Kelts says, for that price you want to make sure the appraiser is not only a qualified appraiser, but that he or she is knowledgeable about your particular neighborhood or community.
“What’s your home worth?” remains a difficult question to answer. Get a professional appraisal and talk to local realtors. In the end, though, no one really knows how much a buyer will be willing to pay until the home is on the market.