While real estate agents go through great pains to provide homeowners with accurate expectations for the value of a home, it is nearly impossible to predict an exact sale price. The two primary reasons for this are free market forces and the uniqueness of most every home.
My answer to the question “How do you know what a home is worth?” is that a home is worth what a buyer is willing to pay and what a seller is willing to sell it for. That is a free market! Now, consider that very few homes are exactly the same. Even in new developments, where the homes are relatively similar, the lot value is a variable from the beginning. As time passes some homes are maintained well, while others are not. Consider an older neighborhood where some homes may be remodeled, updated or torn-down while the neighboring home has remained in its vintage condition. I think you get my point; each home is unique. In the end, an agent’s goal is to provide a range within which a home will sell.
There are many factors considered when attempting to determine a home’s value. This endeavor is not an exact science; it takes experience, skill, and determination to come up with a home’s value. This is the reason I caution people from drawing conclusions regarding a home’s value based on aggregate websites (Zillow, Trulia, etc.) which use algorithms or assessed value which is a function of your tax authority. The best sources for home values are real estate agents and home appraisers. These sources consider many factors such as size, market trends, location, time of year, condition of home & competing homes, just to name a few. This kind of work happens on the street and can’t be replaced by algorithms or online research. Of all the factors used to determine home price, the principal factor used by real estate agents and appraisers is sold comparable (aka comps). Comps set the market for a neighborhood.
Comparable Sales – The Importance of Knowing the Area
On the previous page, we established the importance of comparable sales (“comps”) when determining home value. The real challenge is determining the correct comps to use. There are a few criteria, accepted by real estate agents and appraisers, that should be followed in determining which comps are used, or not used.
To right, you’ll see the list of the most commonly used comp criteria. While there are other criteria taken into considerations, these are the most influential on value. The primary tool used to find comps is the Multiple Listing Service (MLS). The MLS is a comprehensive database of nearly all active and sold property data. The MLS is available to real estate agents for a fee. Occasionally the stars align, and an agent can easily find comps on MLS that closely match the subject property, but this is rare. More often, an agent spends considerable time weighing imperfect comps against one another to determine which 3-5 comps are best suited to help determine value. This research is like putting together pieces of a complex puzzle. Skill, training, and experience are important during this process.
Generally, the easiest property type to price is condos because the units within a condo development tend to be similar and easily compared. The hardest property type to price is a unique home on a unique lot with a unique feature such as a lake. Under those circumstances, it is sometimes impossible to come up with a usable comp. That is where a skilled agent shines.
As you can see, determining an accurate price for your home is not easy. While valuations are readily
available online through Zillow type sites or county tax records, those sources are notoriously inaccurate and should not be relied upon. If you are serious about understanding the value of your home I encourage you to contact your Fazendin agent. Whether you are contemplating a remodel, move or second home, we believe a well-informed homeowner is able to make correct and confident decisions. We look forward to assisting you in the future.
A Snapshot of Your Neighborhood
In today’s market, accurate pricing prior to listing means everything. We are using a new tool to help our customers feel more confident that they are not leaving money on the table.
The above graph (scattergram) is an example of a specific neighborhood detailing the real estate activity that has taken place in the past six months. This includes homes currently on the market, homes that are pending, sold and those that failed to sell. The trend (line) is shown on the above chart in blue. This line tells us where the overall market values are trending.
By compiling a home’s square footage and referencing that compared to sales prices of comparable homes we start to see those trends. This is one tool that we are using to help our clients pinpoint the current market value of their home. Other factors such as yard size, landscaping, age of roofs and interior updates are then added or subtracted.
For a more detailed explanation or if you are curious about the market value of homes in your neighborhood, please contact your agent and ask them to prepare a scattergram for you.