Pricing your home to sell is critically important. Start too high, and you’ll waste the summer selling season. Start too low, and you’re leaving money on the table. So, how can you know what your home is really worth?
Guestimating the value of a house is always difficult, and it’s even more challenging in a market like this. But there are clues all around us. Realtors, resales, and research can all point toward a fair market value. If all else fails, you can call an appraiser.
Before we start pulling numbers, let’s talk about Fair Market Value, often called FMV.
FMV is that price which a well informed buyer would be willing to pay and at which you would be willing to sell, assuming you had normal motivation. Some appraisers have dropped the word “fair” entirely, believing it to be irrelevant.
The real problem is that FMV can (and often does) change daily, and it rarely moves in a straight line. One day it might be up, the next day it might be down. It simply depends on the market conditions and comparable sales on that day.
The best we can hope to accomplish is to determine what a property might sell for on a particular day. We can do that by looking at recent sales of similar homes as near to the subject home as possible.
Here are three quick ways you can get a good idea of what your house might be worth. I recommend that we explore three sources of comparable sales data:
* REALTORS
Real estate professionals have free access to a complete computerized database of recent home sales, both those that were listed with agent and those that were sold by owner.
Often for the price of lunch, you can convince a real estate agent to print out a Competitive Market Analysis, better known as a CMA, and give you a copy.
The CMA will show details of your home like age, square footage, and bed-bath count, then compare that to similar homes that have sold in the past 12 months nearby. This information can be extremely helpful in estimating value, but does not go into the same depth as a full appraisal.
* RESALES
Lots of owners make a habit of viewing homes in their neighborhood that go up for sale, then finding out what those homes eventually sell for. Remember, the selling price is not confidential, and the agent who listed the property can and will tell you the closing price after the sale occurs.
By following sales activity and comparing home features like age and bed-bath count, you can get a pretty good idea of what your home might bring on the open market.
Finally, we can look at what I call
* RESEARCH
When it come to value, please ignore both tax valuations and internet estimates.
Your tax assessment aims to be an actual value number, but the tax assessor probably hasn’t been inside your house since the day it was built, and maybe not even then. Tax assessments are notorious for being way off base, and are simply not worth considering.
And in my opinion, the online estimates are even worse. Typically, they ignore improvements that may have been done to the house since it was built. My advice is to totally ignore online estimators.
Instead, to really nail down a true market value, you can hire a licensed appraiser to do the research and come up with a solid number.
Appraisers go far beyond just a CMA or a “guess-timate.”
Based on their experience and their advanced training, an appraiser will examine and measure your property carefully, then apply three different metrics to the property.
First, what would it cost to build the house back if it burned to the ground?. That is called the replacement approach to value. This exercise is particularly helpful in estimating the value of unique or special-purpose properties, such as a church sanctuary.
Second, what is the current value of the income stream which the house might generate as rental property? This involves using a capitalization rate in an attempt to compare one form of investment to another, and is best suited for income properties such as apartment complexes.
The third question will prove to be the most helpful for us, and it is this: what are comparable homes selling for in your subdivision?
The appraiser then devises a compilation based on all those numbers, and comes up with an “estimate of value” for that particular day. It might be worth more (or less) tomorrow, but on that day, the estimated value was this many dollars.
Unfortunately, a professional appraisal will cost you several hundred dollars, and might take a couple of weeks to get back, and you’re still left with just an estimate. However, there is no more accurate method available, so an appraisal may be your best bet.
Native Atlantan John Adams is a real estate broker, investor, and author. He answers real estate questions every Sunday at 3 pm on WGKA-am(920). He welcomes your comments at Money99.com, where you will find an expanded version of this column.
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