False Assumption 4: Appraisals and MLS information is adequate to assess local risk and make a buying decision.

Home buyers and investors often make their home purchase and property investment decisions based solely on appraisals and MLS-based information about housing prices. They assume that those sources provide accurate and reliable information that reflects the true market value of the properties they intend to buy, and all relevant current local information.  However, this assumption is very incorrect.

Appraisers have been under tremendous pressures from mortgage brokers to overstate home values. These pressures were especially evident during the past decade, given the exceptionally aggressive mortgage lending that lead to the creation of the housing bubble. As appraisers receive over 95 per cent of requests for their services from mortgage brokers, it is obvious that many succumb to the pressures and artificially inflate housing prices. Moreover, appraiser can inflate home values by ignoring problems or comparing appraised homes with inappropriate comparators. As a result, if they rely on appraisals alone, home buyers may actually pay more for a home than what a home is actually worth.  And in fact, many buyers actually did. 

On the other hand, MLS offer information about home prices that is based on multiple realtor feeds that enter into the database as properties become available on the market and sold properties. However, the data represent a fairly irrelevant "snapshot" of the market conditions at the time when the data are entered into the database, so two or more reports about home prices in the same local market may actually be markedly different. Moreover, MLS information about home prices is based on perceptions of home values, which may be biased toward a particular type of property or market segment. And remember, agents and brokers make their income from commissions and sales, not by examining the data, or entering in data or information. Most importantly, neither the appraisals nor MLS information takes into account the factors such as the latest demographics changes, nor economic supply and demand factors, or economic growth factors needed to make quantifiable predictions about future movements in prices at any local level.

The Home Value Predictor, which looks at current local socio-economic, demographic, and financial forces behind the changes in home values at the block level, is thus a more reliable indicator of actual values of homes at any particular time in any specific local market. It is also more useful as a decision-making tool than the information provided from appraisers or MLS sources because it offers a perspective into future trends in housing prices.

For more information, visit www.HomeValuePredictor.com   and click the link to purchase my book titled “The Missing Keys to Thriving in Any Real Estate Market.”

http://twitter.com/EddieGodshalk