How to know how much to offer for an Arizona home and not overpay?
Everywhere you look, you will find a suggested value for a home. Rarely will the value be the same from one website to the next. I have often been asked why. Well, I can guarantee you no one from Zillow, Trulia, REALTOR.com, Redfin, Tax Assessor, etc., stepped foot in the home, knows the condition of the home or knows the neighborhood.
Zillow has a link in their website footer to an explanation for Zestimate values to give you an idea about how close they may be to the Sales Price for what percentage of the homes listed. Kudos to Zillow for being honest. Zillow says its website includes 1.7 million Phoenix homes, of which 1.5 million have a Zestimate value. Currently, Chandler and Gilbert AZ homes for sale are selling on average for ~$300,000 per Zillow states:
43% of the time Zestimate is within $15,000 of the sales price, 57% of the time the error was greater;
68% of the time Zestimate is within $30,000 of the sales price, 32% of the time the error was greater;
88% of the time Zestimate is within $60,000 of the sales price, 12% of the time the error was greater.
According to Zillow the median Phoenix Arizona home for sale Zestimate error is $18,600. I don’t know about you, but that is a lot of money and unacceptable.
A 5% error for 43% of the homes might be okay for some. But the problem is you don’t know if the home you are considering is in the 43% - or in the other 57% with a far greater error rate!
If you are one of the lucky ones who buy a home for all cash, you will probably offer under list price, knowing that some sellers will discount their price for the certainty of a cash sale not being undermined by an appraised value less than the contracted sales price. Most sellers will counter, not dismiss, a cash offer that is too low. Good luck getting a great value.
The rest of us will be subject to the home value determined by the appraiser. A knowledgeable real estate agent can come close to the appraised value by using the most recent, similar, comparable home sales within the same subdivision requiring the fewest adjustments (compensating factors) to gauge current market value.
This unemotional value has nothing to do with what the seller paid for the home or what the seller needs from his current home to buy his new home. Most upgrades and cost of getting the home ready for a sale (paint, carpet, and repairs) are required to bring the home up to selling standards. If a home is not up to selling standards, the buyers will discount their offer, accordingly, or the home will sit on the market until it is discounted by the seller or fails to sell (rejected by the market as unacceptable). Just because facts are presented, does not make the argument or proposition valid or correct... and this is just one opinion. There is the buyer's opinion of value and then we can talk about the opinion of the appraiser you pay to provide his estimate of value.
The listing real estate agent will compare the home’s floorplan, condition, features, and location to currently active and pending listings and the most recent sold listings to make a market adjustment to the home’s value. Hopefully, the real estate agent representing the buyer will use similar techniques to determine value. Once there is a meeting of the minds of value between the seller and buyer, then we wait for the appraiser to determine the appraised value for the home.
Our Arizona purchase contract requires the contracted sale price to be equal to or less than the appraised value. If the property appraises for more than the sales price, no adjustment to the contract is made. If the property appraises for less than the sales price, either the buyer must make up the difference in additional down payment or the seller must lower the price to the appraised value or the buyer and seller negotiate a compromise where the price is reduced to more than the appraised value and the buyer agrees to increase the down payment to make up the difference between the appraised value and the adjusted sales price. If the seller and buyer cannot negotiate a new sales price, the buyer can cancel the purchase contract within 5 days of learning the property did not appraise for the sales price and have their earnest money deposit returned to the buyer.
Everyone has an opinion about value. But in most cases, everyone else’s opinion is trumped by the appraiser.
I have 25+ years of real estate experience and rarely have an issue with an appraisal of my Arizona home for sale. I look at a lot of data, but concentrate on sales of similar homes within the same neighborhood or if there aren't enough recent sales, I will go out one half mile from the subject property to find similar homes that have sold. These sales have to be recent with the most recent sales being the most relevant. Call for additional information.
Author: Sam Elam, Arizona Associate Broker, CRS, GRI, e-PRO, Berkshire Hathaway HomeServices Arizona Properties
Contact Sam to discuss your Arizona home purchase plans and schedule an appointment to see how he can help make your plans become a reality.