Zillow is wrong.

It’s true. And they’ll tell you so themselves. According to a recent Wall Street Journal article (not that an article had to uncover it – the site clearly states this itself), valuations of homes on Zillow are oftentimes 20% or even 50% higher than an eventual sale price (see article).

It’s no surprise that “today, before a shopper ever meets an agent, he can check out neighborhoods and sales on sites such as Redfin.com and take online video tours to narrow down houses” (see article). Together, cites the Wall Street Journal article, “four of the biggest sites that offer home-value estimates get 100 million visits a month, with web surfers using them to determine what to ask or bid for a home, or whether to refinance.”

With Zillow, Trulia, Homes.com and the like drawing the first attention from home buyers, it’s perhaps surprising that they can get away with being so inaccurate. However, Zillow will be the first to tell you that these estimates are not calculated by humans, but by algorithms that have a wide margin of error. Traditionally, an appraiser will determine the value of a home using comparable homes within a certain area; however, with simply raw data to go on, these algorithms are just not as accurate.

The Atlanta Journal-Constitution cites one consumer saying what some people might think Realtors are worried about, namely that, “The scary thing that the industry needs to be careful of is that the consumer knows more than that practitioner because of these devices” (see article).

However, what needs to be remedied is the over-reliance on online estimates by consumers because, as any of them will tell you, nothing can substitute (nor will it as it pertains to loans and other legalities) a human calculation of a home’s value. Zillow is an amazing resource – it lets you surf homes and take a first look as you being to search for your new home. Keep in mind, though, that searching for a new home takes more than a first look – it takes in-depth research, reliable data and statistics and a professional savvy enough to help you navigate the market.

So as you’re looking around on Zillow, soak up all that it has to offer, but take those Zestimates with a grain of salt.

Shedding some light on how we got here…

Flippers’ housing bust role larger than thought

New federal report shows large role investors played in the implosion

By CRISTINA SILVA
, December 12, 2011

LAS VEGAS — A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.

Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an “undocumented” dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

More than a third of all U.S. home mortgages granted in 2006 went to people who already owned at least one house, according to the report. In Arizona, California, Florida and Nevada, where average home prices more than doubled from 2000 to 2006, investors made up nearly half of all mortgage-backed purchases during the housing bubble. Buyers owning three or more properties represented the fastest-growing segment of homeowners during that time.

“This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family,” the researchers noted.

Investors defaulted in large numbers after home values began to drop in 2006. They accounted for more than 25 percent of seriously delinquent mortgage balances nationwide, and more than a third in Arizona, California, Florida, and Nevada from 2007 to 2009.

As a result, millions of homeowners saw their home values decline so that they were worth less than the original purchase price. Foreclosures skyrocketed as people couldn’t or refused to pay their underwater mortgages. Residential construction also languished, putting hundreds of construction workers in the hardest-hit states out of work.

The report concludes that lenders and regulators must limit speculative borrowing to avoid future housing busts. For example, in China, government officials are now requiring higher down-payments and mortgage rates on investment homes, according to the report.

In Nevada, which has the nation’s highest foreclosure rate, the housing market remains weak, with home prices continuing to fall in the Las Vegas area, where most of the state lives.

Home prices were down 7.3 percent in November compared to a year before, according to the Greater Las Vegas Association of Realtors. That means the median price dropped from $134,900 to $125,000 in one year. More than half of all home sales were purchased with cash.

Paul Bell, president of the real estate association, said amateur investors were behind the soaring home values seen during the first half of the last decade, but noted those buyers were simply taking advantage of how easy it was to buy homes at the time because of questionable lending practices and government pressure on banks to promote home ownership.

“There was blame to go around for everybody,” Bell said.

The market has now shifted so that cash investors are helping Las Vegas recover by buying multiple vacant homes, fixing them up and selling them, Bell said.

“If we did not have the serious investors in the market … we would have many neighborhoods in a very run-down condition,” he said.

Advice Worth Taking: Tips for Women Hunting for A Mortgage

The previous blog post (see here) noted that women are 32% more likely to pay a higher interest rate on their loan, according to the Journal of Real Estate Finance and Economics. Ostensibly, women are far more likely to take the advice of a friend or colleague rather than consult with several different lenders and compare (see article).Now for some advice to women to close that gap and make us all more informed consumers.

Be sure to look not just at different lenders, but at different types of lenders; check out large national banks, mortgage brokers, online lenders and smaller lenders to ensure you’re getting the best range of options.

Also, make sure you’re comparing the same loan product. A 30-year fixed at a national bank will have a very different rate than an ARM at a smaller lender. And on top of the type of loan, remember that rates change daily, hourly in fact; try to cross-reference these loans within the same day, or preferably within the same part of the day, if possible.

If you’re having trouble remembering who you talked to and what you talked to them about, try writing several scripts and working on a spreadsheet so you can keep the data in the right place. This will also make sure that you’re asking them the same questions for certain pieces of data – rates, terms, points, etc. As you work on your script, become familiar with loan terms so you know what you’re dealing with (you can do that here). A little up front research can go a long way to prepping yourself for these conversations. It will also keep you from worrying about getting the run-around because you’ll know what you want before you call.

So when it comes to advice from our friends, ladies, keep an eye on what we have to do on our own to make sure we’re making the best possible decision for ourselves as we move into our new homes.

Take note, ladies, let’s make sure to do our loan research!

Women don’t shop enough for home loans

Ann Brenoff, AOL Real Estate, December 2, 2011

The report, published in the Journal of Real Estate Finance and Economics, set out to explain why women were 32 percent more likely to get a subprime mortgage than men in a 2006 study. According to a team of researchers led by Florida Atlantic University’s Ping Cheng, the answer wasn’t discrimination because of gender or even income disparities.

Women pay higher rates because they are more likely to listen to friends’ recommendations, whereas men are more likely to shop around for the best deal.

“Our empirical test confirms that search effort is rewarded in (the) marketplace, and suggests that gender disparity in mortgage rates may be addressed by policies aimed at improving women’s financial literacy and search skills,” the report summarizes.

It makes sense to Daily Finance columnist Laura Rowley. “It’s not surprising, because mortgage shopping can be incredibly complex, so we look to people we can trust to help make the decision,” says Rowley. “But this is one area where you don’t want to get by with a little help from your friends.”

Instead, she advises, call two mortgage brokers and a direct lender, preferably a local small or midsize bank, and try the following script: “Hi, my name is (X) and I’m in the market to buy a ($X) house, and I’m going to put down (X) percent.

“I’m getting three written estimates, and then I’m going to choose. Can you email me a cost-estimate worksheet stating all the fees and the interest rate?”

Be sure to get the estimates on the same day, as rates can change quickly. Also, don’t ask for rates and fees by phone; unscrupulous brokers will simply lowball their estimate to get you in the door, says Rowley.

More on Winter listings: Generational changes lead to market shifts

The previous post mentioned that selling your home in winter may not be as unappealing as it may have once been. Delving further into this trend, we start to see a demographic reason for this shift. Traditionally, the homebuying season mirrors school calendars so that parents can minimize impact on their children during a move. However, “The generations are changing and we are seeing millennials come of age, so to speak, and closer to the homebuying age…hopeful property owners aren’t as locked into traditional seasonal patterns,” says Julie Reynolds, vice president at Realtor.com (see article).

In cooler climates, even as these changes are taking effect, homeowners can be tempted to take lower offers than they might during warmer seasons, fearing fewer buyers. These sellers should take note of these changing market realities. As well, in warmer climates, buyers are actually competing in winter against “snowbirds” for whom properties in the sun seem far more valuable when the lower temperatures set it.

Here in the Tri-Valley area, our world class schools mean that sellers here may see less of a shift than other areas. However, with the high price point Pleasanton, Livermore and the like fetch, many buyers may be looking to take advantage of the winter slow-down to cash in on a bargain-priced home. What does all this mean for our area homeowners? It means that while change may come a bit slower, the Tri-Valley will slowly feel the effects of these demographic shifts and the real estate market may thaw even while temperatures are at their lowest.

As trends shift and the market follows generational patterns, we will see a redefinition of what it means to both list and to buy in the winter months. Using the tips mentioned in the previous article as well as consulting me about how best to show your house or where best to find the greatest winter deals on a home means that doing a real estate transaction in wintertime doesn’t have to leave you out in the cold.

Rethinking seasonal home sales…

Winter Real Estate Blues are a Thing of the Past

Mike Wheatley, The Seattle PI, November 25, 2011

The way things used to work was that real estate agents would often recommend against winter home sales, and advise their clients to take their properties off the market over the winter months in order to “freshen things up” and get the home ready for spring when more buyers would be on the lookout.

But that was the old way of doing things. According to Sam DeBord of SeattleHome.com and Coldwell Banker Danforth, any agent advising this practice now is making a serious error. If you want to sell your home, you should leave it on the market at all costs.

These days, freezing cold weather, holidays and a lack of daylight hours are not stopping prospective buyers from getting out there and searching. 90% of buyers actually do their house-hunting online anyway, and many more are quite happy to drive around neighborhoods they’re interested in and seek out listed homes, come wind rain or shine.

Also – and this is very important for anyone desperate to sell – during winter there will be significantly less competition.  So even though there are traditionally less home sales in winter than other seasons, when these are equated to the reduced inventory on the market, it’s likely that your home still has the same chance of being snapped up as it would in warmer weather.

So the moral behind this story is a rather simple one. If you really want to sell, then sell!

TARP on the Lookout: The Federal Government Shuts Down Mortgage Relief Scams

You may not have heard of it, but it’s watching out for you: TARP, the Troubled Assets Relief Program. The federal government created TARP to reduce fraud, waste, and abuse and to purchase assets and equity from financial institutions to strengthen its financial sector. Signed into law by George W Bush in 2008, TARP was a response to the subprime mortgage crisis. While its success has long been under questions, TARP has in fact seen some success lately. To date, “of the total $700 billion bailout money, banks, other financial institutions and U.S. carmakers received $413.4 billion, of which, about 77% (nearly $317.6 billion) has been recovered by the government” (see article).

Along with focusing on helping struggling financial institutions, TARP also acts as a kind of consumer watchdog. This week, TARP shut down hundreds of shady relief sites that advertise on large search engines. To bolster their efforts, Google has since suspended relationships with 500 advertisers and agents linked to the online mortgage fraud scams that advertised on its search engine and Microsoft, for its part, cut off 400 advertisers this week. Purchasing certain search words like “foreclosure assistance” and “loan modification,” these groups seek out distressed homeowners as they search online for guidance (see article).

These scams can target homeowners in a number of ways: they can require up-front fees for supposed assistance and, in extreme cases, they advise borrowers to cease paying their loans and cut communication with their lenders. Often claiming to be associated with government agencies, these scams can lead to thousands of dollars in losses and credit issues for homeowners who fall prey to them.

Should you be searching for assistance with your loan, be wary of what you find in your searches. Make sure to do your due diligence and check out any groups claiming to offer help. Consult your Realtor, lender or banker before committing to anything and always be wary of anyone requiring money up front.

For further assistance, the government has set up a hotline to answer questions and offer guidance to distressed homeowners; for more information, call the Hope Hotline at 1-888-995-HOPE (4673) or go online to http://www.makinghomeaffordable.gov/pages/default.aspx.