Appraised value and market value off by over 100k - why location is important

[Alan Asriants]

Absolutely, numbers and figures are important when analyzing real estate, but actually seeing the property is crucial. It's why people always say that the most important thing in real estate is location, location, location. A lender might be able to tell you what the property is worth based on their formulas and algorithms, but if they haven't seen the property in person, I wouldn't always take their word for it.

That's where a good agent comes in. A good agent can spot these things and figure out the property's best use. In on of my cases, my client had a property that had been appraised and valued by a lender for a refinance, and I had done a CMA to justify the price based on various factors such as sq ft, condition, location, etc. However, despite the numbers adding up, the property wasn't selling.

After some time on the market with no real feedback from agents, I decided to take a closer look and realized that the issue was the property's location, but not just because it was on a busier street. By walking the block and talking to the neighbors, I discovered that the building across the street was a drug rehab clinic and that one lady had purchased all the homes next door, on both sides of my client's property, and converted them into triplexes or even illegal quadplexes, renting them out to section 8 tenants.

After discovering the issues with the property's location, we knew we had to adjust the listing price. We started the listing at $520k, which was lower than the lender's and appraiser's estimate, but still within the range of the CMA. However, even with the adjusted price, we couldn't generate any offers. We continued to lower the price, eventually dropping it down to $420k, which was significantly lower than the initial estimate.

This was a tough pill to swallow for both my client and myself, as we knew that the property was worth more than what it was currently being listed for. However, we had to be realistic about the situation and understand that the market demand wasn't there due to the location and neighboring properties.

This information was crucial in understanding why a large family would not want to move into this home. It was hard for a potential buyer to justify paying over half a million dollars to live next to section 8 rentals and across a rehab facility. The interesting part was when I first saw the property records, I saw that it was zoned for a duplex by right. Had the owner realized this when they first purchased the property and turned it into a duplex or triplex instead of completely renovating it into a large single-family home, they would have been able to get that $535k, maybe even more.

An investor agent could have figure out the property's best use and recommended to the client to rehab the property into a Duplex. This would have save my client a lot of trouble had he known this information.