profile picture

Go back to Home Page

ECONOMETRIC ANALYSIS:

Econometrics combines economic theory with statistics to analyze and test economic relationships. Click on the term above to see the Wikipedia definition of Econometrics. John C. Carlson Real Estate Appraisals has developed a unique value trend methodology we refer to as an "Econometric Analysis". Essentially, an Econometric Analysis it is a mix of economic and statistical methods of analysis and provides a basis for an appraiser’s value trend analysis and adjustments

There are various sources available on the Internet, such as “Zillow” and “Case-Shiller” where market area statistics can be viewed. However, these sources analyze markets on a Zip Code level. There can be many different “neighborhoods” in a Zip Code that can all be acting independently. It is much more correct to analyze a Subject Property within its Market Segment.  For a Wikipedia Definition of "Market Segment" click on the purple words in the prior sentence.

With respect to real estate markets, the definition of a “Market Segment” that we use is as follows:

“A neighborhood or group of neighborhoods that share one or more similar attributes that causes them to be reasonable marketing alternatives to the property being appraised and the immediate neighborhood in which the property being appraised is located” 

What this means is that in addition to the immediate neighborhood where a property being appraised is located, we analyze all properties in close-by surrounding areas that directly compete with the property being appraised. This gives a much better "shapshot" of how properties similar to the property we are appraising are performing.  

Let's look at an example so that this can be understood. Let's say our company is appraising a property @ 123 Bob Lane. This house is 1524 SF, built in 1990. In our appraisal, we would locate and utilize properties located in the immediate neighborhood, if available. However, in our Econometric Analysis in order to better understand the market trends in a given area, we would look at all properties within reasonable proximity to the property we are appraising that a buyer would also consider in a search for a home. We do this by utilizing MLS Board searches.

As noted previously, one group of homes, let's say the 1500 SF to 1700 SF homes we are appraising can be increasing in value while the nearby 3000 SF to 4000 SF homes are actually decreasing in value because buyers in an area cannot afford the big homes. When Zillow looks at this area, it is measuring both the smaller and the bigger homes and reporting a "composite" sales trend rate that is incorporating both house tracts. It is much more accurate to measure only the market segment in which the property being appraised is located.

(This page is still under construction - come back to see the improvements)

Go back to Home Page