We fundamentally agree on all points.

My only concern is HOW does one know, simply be looking at the closing sale price, if it was indeed an arm’s length transaction?

As an agent, you see the home price battle everyday. I have people ask me about the price they’re about to pay for a home all the time. Home prices are arbitrary and I don’t believe any of us are smart enough to instantly pre-determine a price for a home. I can only give them a price range if they’re not my client and I don’t believe anyone else can do any better. Not even a trained experienced assessor can give the actual price of a home everytime.

The issue does seem to be breaking down to an argument about value and price. We may actually need to define “value” and “price” before we really settle the discussion. Personally, value doesn’t mean anything to me because it’s subjective to opinion. If that opinion doesn’t come from someone who’s buying the house, I find it hard to gauge it’s credibility.

By the sounds of Karim’s words from My-Currency, they may be attempting to create a marketplace for homes that people can rely on. I don’t know if that’s a marketable/achievable idea, but it will be interesting to find out how they plan to work it out.

Right now – my opinion – everyone is more focused on a creating a viable revenue model than really trying to serve the needs –

Clifford over at the WebHomeUSABlog had a good post – What Would Google Do? Google got to where they are by serving the need first. Of course, they seem to have lost their innocence now as they try to monetize the entire GoogleSphere.

This becomes an epistomological discussion pretty quickly about “value” and “price” and for that matter “truth.”

My view — and I may well be way off — is that there’s really only one point in time at which you definitively know a property’s value, and that’s at the moment of sale (with the standard conditions: arm’s-length transaction, no coercion, etc.). At that exact moment, the property’s value is exactly what the buyer and seller agreed on. That price by definition includes all the unZillowables.

At any other moment in time, it’s just an educated guess. That guess might be made by an appraiser, an agent, an AVM, or a collective market mechanism. However the guess is made, it’s just that — a guess, nothing more.

If I guess that a property is worth only $200K because it’s 10 feet from the train tracks, but a retired train engineer buys the property for $300K because he loves its location, then its value at that point in time is $300K. A day later, we’re back to guessing. If our train engineer decides to sell and can’t find somebody else with a similar appreciation for that location, the value may be nowhere near to the $300K he just paid.

As for your example of times when there are price distortions — e.g. an estate sale, or an auction — whatever price is settled on is its value at that point in time. Predictors on my-currency with better knowledge of what’s happening than the general market will consider those factors when making their predictions.

Good points & I tend to agree with them, but I have a question concerning the 100% right answer:

>>>there is a final 100% right answer, and that’s the price at which the home actually sold

While this may be true for most home sales, it is not true for all. The selling price as part of an estate sale, or sale to a family member, or motivated (must sell) seller will render a sale price below generally accepted FMV and therefore not 100% right. And this does not even take into account various rebates and concessions which are not reflected in the sales price. (see Surowiecki’s New Yorker article link above for his analysis of this).

Does this in any way compromise this valuation system?

I guess I have a fundamental problem with the underlying philosophy of valuation and its applicability to price. Value does not equal sales price, mainly because of UnZillowables, many of which, like market pool and local market conditons, may be in flux. (A glut of golf course properties will render lower sales prices than the only one currently on the market).
I’m always thinking of Antiques Roadshow where the expert expresses the value as “at auction”, for insurance purposes, or at retail (in the shop).

In real estate, any of those values may apply in any given circumstance to determine price. A quick example. During the boom in NYC a few years back, it was “auction value” setting the price, as we had to manuever to outbid other offers, all over asking price.

There is an Eastern saying (and Joel will correct me on this
“Don’t mistake the finger pointing at the moon for the moon” The finger is valuation, the moon is price.