Reader Question: We want to pick the best real estate agent from three finalists. Each agent chose three different comparables, and there is a thirty percent difference between the best price and lowest price when including all nine comparables. This difference equates to over $60,000. How do we know which estimate is the most accurate comparison to our home? And, should the listing be awarded to the agent whose comparable choices most closely resemble the features of our home?
Monty’s Answer: Here is some background information to help set the stage for the answers to your questions.
Unfortunately, the vast majority of real estate agents do not take the time required to evaluate comparable sales data properly. A significant segment of the evaluation process is the selection of the best comparables and documenting the value of the differences between those comparable sales and your home. The most likely cause is they have not been trained adequately on how to evaluate homes.
The real estate licensing officials in almost every State in America abdicate appraisal training to the real estate industry, and real estate companies focus agent training on finding and converting customers. Without appraisal training, agents do not realize the consequences of bypassing the steps necessary in the appraisal process, which is recognized by learned individuals as the best method yet devised to estimate property value. No reliable substitute to the appraisal process exists for evaluating real property.
Ironically, the National Association of Realtors (NAR) consumer surveys indicate the majority of home sellers only seek one estimate of value when placing their home on the market for sale. Consider that multiple appraisers, who have extensive training to evaluate homes, will vary in their opinions on the value of a home. Why would real estate agents, most of whom have little education and training in appraisal methodology, be any different? You are experiencing this divergence in your question.
Homeowners assume that their trusted agent pick knows how to evaluate homes. In the agent’s defense, they believe they can evaluate homes because they learned from more experienced agents when they came into the industry. Most of those teachers had minimal formal appraisal training.
The consequences of this industry defect are the homeowners who only seek a value opinion from one agent are at risk for unknowingly pricing their home incorrectly. You reduce your risk with three agents. Remember you are solely at risk for valuation miscalculations.
Three tips to identify the most accurate range of value
- The best comparables are homes that require the fewest adjustments. When all the features of the comparisons are very similar, there are minimal changes. For example, if your home is a ranch style home with two thousand square feet on the main floor, and every comparable is a ranch within one hundred square feet of your home, no size adjustment is required. Here is a link to an article with a schedule of features for adjustment that adds perspective at http://bit.ly/featureadjustments
- The feature adjustment calculation totals on each comparable should not exceed about fifteen percent of the anticipated value of your home. If the adjustments are greater than fifteen percent, the comparables are not suitable. For example, if your country home does not have a costly horse barn but a chosen comparable does, a significant adjustment for the outbuilding should eliminate that comparable from consideration.
- The subtle nuances of features in the link above that are harder to judge can enhance or reduce your confidence in the preparer. Features such as quality of construction, the value of the surrounding neighborhood, and school districts, to name a few, require rational judgment in addition to routine calculations.
Do you reward the most accurate agent?
There are good reasons to choose the agent that presents the clearest picture of what you can anticipate, and artfully articulate how they reached their conclusions. Your listing agent will be representing you in interactions with cooperating agents. These interactions include creating interest in the house, explaining the home’s features to agents seeking more information, and most importantly, representing you during negotiations.
This agent will be in the best position of the three agents to defend your price and advise you on strategy because she or he have better prepared themselves to act in this capacity. This agent better understands the value proposition and likely possesses a superior interpretation of the neighborhood market and competing homes as well.