estimating future ARV

5 Replies

Thx ok,  here's a question for the smart people:

When attempting to estimate a property's ARV "potential", how much weight do or would you put on sales that occurred right before the bubble burst, I.e, 2008-09, as reported by zillow, trulia, etc? I'm thinking in context of a buy and rehab and rent for a few years, trying to ride the next cyclical upswing.

Thanks

You will need to look back more than 1 cycle to get a good idea of how this might play out.  This burst taught us all a painful lesson, and many of us remember it well, but some are starting to forget.  I don't know if we'll see similar trends until another generation - one that didn't learn that lesson - joins the market. 

Some markets are 10 years, some are 13 - it's all over the board.  I believe the best way to find that is go to your local association of realtors and get the annual appreciation stats (may be able to get from a large national title co), then chart it all out in excel however it makes sense in your area code - be that zip code, township, etc...  This should give you an idea of the trends, and you could probably run some case studies that will give you an idea of where the values might land.

Please note the use of the key words "should", "idea", and "might".  no crystal balls here.

Originally posted by @Michael Buttram :

Thx ok,  here's a question for the smart people:

When attempting to estimate a property's ARV "potential", how much weight do or would you put on sales that occurred right before the bubble burst, I.e, 2008-09, as reported by zillow, trulia, etc? I'm thinking in context of a buy and rehab and rent for a few years, trying to ride the next cyclical upswing.

Thanks

Relying solely on Zillow's estimates could often be a dangerous thing to do especially when trying to estimate ARV. The actual values of the property could be miles apart both between the various websites and compared to the MLS comps within the neighborhood where the property is located. If you are just trying to discover a pattern, try to get something that is also based on actual MLS numbers to compare with what the sites are reporting.

I was definitely planning on relying on actual sold transaction data -- are these values not reliable through Zillow and other sites? I knew that actual property listings are oftentimes dated versus the MLS.

Originally posted by @Michael Buttram :

I was definitely planning on relying on actual sold transaction data -- are these values not reliable through Zillow and other sites? I knew that actual property listings are oftentimes dated versus the MLS.

Data quality is often an issue especially when information is passing  through multiple intermediaries. It may get 'corrupted'. Here are some links that may describe some of these issues:

http://seattlebubble.com/blog/2013/09/16/zillow-trulia-still-apathetic-about-data-quality/

If you were also relying on any type of zillow estimate or anything that in some way relied on or utilized the 'zestimate', then that really might be a problem as anything with a 'zestimate' in it is often not only way off in some cases, they often literally revise the algorithm which does often mean revising their historical estimated data.

http://blog.louisgray.com/2011/06/zillow-rewrites-home-price-history.html

Zillows response on this is also somewhat of concern:

This is directly from Zillow:

Do you ever change prior Zestimates?

Yes. When major improvements to the algorithm are made, we do re-compute the historical Zestimates for affected homes. Our purpose in doing so is to provide consumers with the best estimate of historical property valuations. A historical Zestimate is not like a historical stock price, which doesn't change after being recorded. A stock price is a record of an actual empirical event (and, as such, shouldn't change). A Zestimate, on the other hand, is an estimate of the market value of a home, and can change when we have a better algorithm to estimate that value....

Does the Zestimate algorithm ever change?

Yes, a team of statisticians is working every day to make the Zestimate more accurate....

Market speculation is, by definition, risky business. If you are making proper investing decisions based on the current value of the instrument and want to play speculator as an added bonus then have fun. If you're investing in instruments which do not have an attractive return and hoping to profit on future market fluctuation then I would reconsider that approach.

Just my 2cents.

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