Before your fantasies run amok you
need to realize that, while you can estimate the value of your home in a
variety of ways, the true value is only what a buyer will pay for it. That
said, there are several ways to get a strong idea of how much a buyer will pay
for the property in current market conditions.
What Your Home Isn’t Worth
Many homeowners find it confusing
that there are various numbers floating around that indicate their home value.
Here are a few:
§ Property tax assessment. Each
jurisdiction uses a formula to establish home values for a tax assessment, but
this price rarely correlates with the market value of your home. Your tax
assessment can be higher or lower than the current market value.
§ Homeowners insurance value. Insurance estimates are based on the cost of replacing
your home without the land, so this value is skewed compared to market value.
§ Mortgage balance. Your
mortgage balance simply reflects your home loan. The difference between your
loan payoff and the market value of your home is your equity.
§ Neighbor’s home value. Even
if your neighbor’s home is similar to yours, it’s not likely to be identical. A
REALTOR® can help you evaluate your home’s worth in the context of other
nearby properties.
§ Cost when you purchased the home. Regardless of how long ago you purchased your
property, the value can have gone up or down.
§ Desired value. You
can always try to put your home on the market for your desired price, but if
you’ve over- or under-priced it, you’re shortchanging yourself. because you’re
either selling too low or your house could sit on the market and eventually
sell for less than if you priced it correctly in the beginning.
Comparative Market Analysis
A REALTOR® can do a comparative
market analysis with recent market data to help you estimate your home value. When you sell your home, an appraisal will be required by
the buyers’ lender, so keep in mind that your home has to appraise for the
selling price or, depending on how your contract is written, you’ll have to
renegotiate the sale or the buyers will need to come up with extra cash.
A CMA is both an art and a science.
While it’s based on data, it also requires local market knowledge and intuition
about which homes to compare and how to interpret the prices. Most
REALTORS® will look for recent sales of homes that are similar to yours,
preferably within the past two or three months, up to about six months. In
addition, a REALTOR® can look at other homes currently on the market and
homes that didn’t sell that were taken off the market to compare values.
The comparison of your home with
others should include not only the size and the number of bedrooms and baths,
but also the condition of your home, the neighborhood and the proximity to
amenities. If you do not understand the comparisons a REALTOR® is making,
ask to see some of the homes currently on the market or look online at photos
of the properties.
While it may be tempting to list
your home with the REALTOR® who tells you it can sell at the highest
price, a smarter way to sell your home is to price it as accurately as possible
from the beginning. Studies show that an overpriced home that lingers on the
market will end up selling for less than the estimated correct price.