What is my Home Worth? – Seller & Realtor Tips
This article is intended new Realtors but also for sellers and attempt to demystify how house values are determined, how accurate methods and tools are and debunk some house value tools you have likely seen online.
Realtors, hang on to your badges and smart phones, it's going to a rocket ride for real estate this year and just one of the things you'll be asked repeatedly is "How much is my home worth?", "What is my house value?"
Comps & Price Analysis
"Comps" are simply data on houses matching feature to feature in the sellers area as precisely as possible. Using comps, a Realtor will provide a "CMA" or Comparative Market Analysis. Sounds fancy, doesn't it?
More to House Value than Comps;
First of all, let's get some of the online tools you may have seen out of the way, namely E-commerce sites; Zillow, Trulia, etc. These sites rely on whatever brokerages are willing to pay to program listing feeds to their sites, and then sell ad space back to real estate agents. There are several problems with this;
Not all brokerages are willing to provide feeds to E-commerce sites, ergo, these sites pull from some outdated, unreliable property information sources. The local MLS is the most accurate database of homes available, accessible by agents and listings are accessible to the public through MLS fed sites like ours and other reputable brokerages.
See my article "How Accurate are Zestimates" for a gross discrepancy. In some areas around the country E-commerce sites have been known to be off on house values by as much as 50% and off total for up to 40% of listings. I'd be upset if I was a seller and my home was undervalued $50k-$80k. This type of house value calculation doesn't target the pool of buyers you want in your actual price range.
Comprehending Comps - House Value Mistakes
- Comps aren't the end-all and be-all of calculating house value. Have a CMA done by a seasoned Realtor. Typically a Realtor will look at homes for comps within a half mile/mile radius, however, the comps gathered may not paint an accurate picture. This is where crucial skills of the Realtor come into play.
- Look at the differences between the seller's house and the comp house in the infographic, they both could be three bedroom, 1.5 bath, both approximately 2,300 square feet with attached 2 car garage, but it would grossly unfair to say these homes have the same value (if you're selling the comp house you'd be better off, wink!).
- The items on the infographic have a lot more to do with appeal and justifying an asking price. One Realtor may price the home differently than another, arguing up or down depending on the magnitude of these. Are you beginning to understand house values are somewhat subjective and distorted by perceptions of all parties looking at the facts. Other things that can have a drastic effect on comps and deciding a list price are easements, covenants and other restrictions.
House Value & Asking Price - One is Not Like the Other
Most seller's are in danger of over-pricing a listing with few in jeopardy of under-pricing needlessly. See the graph below, averages define not a mere "fair market value" but suggested price ranges based on time frame to sell and seller's urgency. Keep in mind, though a range for fair market value may have been established, the price can vary based on how fast a seller wants the property under contract.
Another ingredient in the pricing pie recipe is absorption rate; the suggested prices above based on time frame to sell are based on a local community's absorption rate but could differ in your area. Here's how to calculate absorption rates.
House Value Savvy - Short Term Future Trends
Now, one smart thing to keep in mind is seasonal flux with sold prices. Savvy Realtors can use tools on their local MLS systems to chart the seasonal rise and fall of sold prices. Think about this, if you're basing all your suggested pricing off of current sold homes, that's already happened and in the past. For instance, If you're listing a month before spring, a Realtor could risk a moderately higher price and meet the goal of having the property under contract in the seller's time frame, netting more for his or her client.