By Diane Saatchi
Before we get into what property valuation means, how it’s determined, and the factors which influence it, let’s draw an important distinction between your property’s market value -- the number we’re talking about here -- and the assessed value. The latter is typically based upon a percentage of the appraised value and is used by municipalities to establish property tax.
Tax valuation has little to do with market value. Market value is the price at which your house should sell.
That number is based on comparing it to similar, recent past sales in the same market (called “comps”) and making adjustments for size, location, and amenities. It becomes challenging to estimate when there aren’t recent sales because the property is so unusual, or because the market has been so slow that there are no recent comparable sales. However, it’s not impossible to do.
Market value appraisals are mathematical comparisons. Appraisers use specific, defined metrics to add and subtract for the presence and absence of amenities and relative sizes and ages.
Here are a few things to keep in mind about a property’s value.
It’s an imperfect number.
Knowing exactly what your property will sell for is predicting the future based upon sales which occurred in the past. Real estate agents use that information to come up with their best guess, but ultimately the market value is determined by what a ready, willing and able buyer will pay.
In a rising market, or when there is high demand for a particular property, an appraiser and broker’s valuation can be lower than market value. Don’t worry, though: If the listing price is too low, a properly exposed property will have multiple bids and could sell above the asking price.
In a declining market, the reverse happens. When the six-month-ago comps are higher than current value, sellers will get offers lower than the listed price, or worse, no offers at all. In such instances, sellers are faced with two options: reducing the price or waiting for conditions to change.
You can’t rely on current listings to determine your house’s value.
A seller might look at current listings and say “There are other homes like mine listed for $X, why should mine be less?” Current listings are houses that have not sold, thus their actual value is not known. All this tells us, is that at that price, all things being equal, your home will also not be sold.
Your home’s value can be affected by seemingly inconsequential things.
There are a number of factors that bump up or down a property’s value, largely having to do with how it presents itself.
I once had customers who saw a mouse in the basement of a house they visited and it was forever known as the “mouse house.” If a buyer is greeted with anything unpleasant, they’ll remember the negative aspects and your home’s value will be affected in their minds.
On the other hand, if it’s decorated in a way that’s universally and currently appealing, it’s clean, it’s in good condition, and there are no red flags when you walk into it (like that mouse), it will be perceived as more valuable.
What your house is worth to you probably isn’t what it’s worth on the market.
It’s common to see a potentially disruptive factor that doesn’t bother a home’s current owner, so in selling it, they don’t recognize that it might bother someone else.
For instance, a neighbor with six motorcycles in their driveway could be a turn off. You knew the kids in that house when they were babies, but a potential buyer may see motorcycle parts and imagine beer-drinking, cigarette-smoking, loud music enthusiasts. It’s things that you’re familiar with and overlook that can drag on your home’s value.
Many of us do not see our own homes objectively. It’s always a good idea to enlist a broker or friend to come by and point out the potential flaws in and around your property that could be off putting. Some can be rectified, others not.
Listing a property too high is a big mistake.
Of course you can ask however much you want, with the idea that you’re open to negotiation -- but if it’s overpriced it’s very likely no one will look, and no opportunity for negotiation. Pricing too high is a common and costly mistake.
It is a good idea to ask a few real estate agents for price opinions, but it is not a good idea necessarily to go with the highest price. Consider the price suggested by the agent who makes the most thoughtful presentation based upon actual sales and adjustments for current conditions.
And a few words about those (pesky) web site price estimates.
In many parts of the Country, the algorithm used to estimate home values is accurate within a median error rate of just 5%. That is not yet the case in some markets and is especially not so in our market. These websites use automated valuation models (AVMs) that cannot determine actual condition, year built or restored, structures without permits, title deficits, covenants and restrictions, stylistic obsolescence, layout, views and other property and location nuances. Until the AVM's accuracy improves, don't be upset by a low or excited by a high estimate of your property.
© 2016 Diane Saatchi