by Michael Hickman
What’s the most accurate way to determine my home’s value?
With my background as an engineer, I’m all about the numbers. As an extension of that, many of my clients are also in technical fields where critical thinking and analysis are part of their daily work. So, I get this question often.
There are actually three different values that can be attributed to your home, all of which have to be brought to convergence for a successful sale. Here are the values that have to be brought into line:
The Buyer’s Value
The Seller’s Value
The Appraiser’s Value
At the end of the day, the sales price agreed upon by these three entities ends up being the market value.
So, to determine the right number, I can say that using an algorithm such as Zillow’s Zestimate or Trulia’s Home Value Estimator is not the way. You might be able to get within 20% of the right number, high or low, but that’s basically useless.
To get the right number, you really need to work in conjunction with a real estate agent to come to the right number. There are a large number of factors that can contribute to a consensus.
Here’s some of them:
Recent (90 days back) sold properties, preferably in the same subdivision
Square footage of the home, both finish, unfinished, heated/cooled and exterior space
Number of bedrooms
Number of baths
Existence of a basement
Year of construction
Level of updating aesthetically
Age of roof
Age of HVAC systems
Age of water heater
Upcoming community changes, such as potential road widening, new construction visible from the home, etc.
Current market conditions (rising, falling or stable)
Stigma issues either with the home or the community
Positives or negatives that add/detract from value such as possibly a cul-de-sac home or a very steep driveway
The perception of a particular buyer can also play a huge role in their thoughts about value. For instance, if they have made offers on several homes and have not been able to get under contract, they may attribute more value to your home because they are desperate to find a place to live. Also, one buyer may think that a few cosmetic issues or repair issues are no big deal that they can repair themselves. Another buyer with little “handiness” might think that replacing a Ground Fault Receptacle is a $100 task, when it’s not.
We’ve addressed the Buyer’s Value somewhat, so now let’s look at the Seller’s Value. Of course, the first major item is what the Seller owes on the property. If they are upside down, then the value they need to complete a transaction may be larger than the market value. The second thing to consider is the motivation for selling. If it’s a job change with a major geographic change, the seller may be willing to sell at a little lower price to move along and get settled in the new job and place. If the seller is casual about selling, they may hold to a higher price. The amount of updating, and how recent, also plays in to a Seller’s perception of their home value. Most Sellers do understand that their return on investment for a particular improvement usually isn’t as much as they spent on the improvement.
Finally, let’s look at the Appraisers view of value. The appraiser has a very specific set of tasks that must be completed to determine value. The very first thing they look at is the Purchase and Sale Agreement to determine what price has been agreed upon by the Buyer and Seller. Next, the appraiser is going to visit the property and carefully measure the square footage. They will look at recent sales of similar type properties and use those real world values and those properties’ vitals to add/subtract value from the subject property. The appraiser does have some leeway in determining their final determination of value; however, it is limited.
Many times, I’m asked if we should get an appraisal on a home before it goes on the market. While at first this seems like a good idea, in reality it is a waste of funds. Since the appraisal is based on 90 days of past sales, the value can change significantly by the time the home is under contract. For instance, a local cash sale at a high value or a recent foreclosure can drastically change the numbers.
At the end of the day, the value is a number that takes into account real-world numbers and “fuzzy” numbers to determine the right price at which to enter the market. It is a collaborative effort and with all things involving humans, can be variable.