Whether you’re throwing the world’s best garage sale, getting rid of a used car or you’re exercising your entrepreneurial spirit on apps such as NextDoor, successfully selling “stuff” starts with setting the right price. If your price is too low, you leave money on the table. Priced too high, there will be no interest and it may not sell. It’s no different with houses, except for the fact that the stakes are far higher, at least financially.
Depending on the purpose for evaluating a home, several different methods are used. The county assessor, for instance, uses a formula that determines the value of the land and home, how much it would cost to replace the property and a number of other factors to determine your property taxes. By the time it is multiplied against the property tax rate in your county, the final figure looks nothing like its true market value.
Then, there is the automated valuation model that is used by some of the big real estate sites, such as Zillow (who uses a proprietary algorithm based on user-submitted information). Because these evaluations aren’t based on actually viewing the home and the user-submitted information may be faulty, and many of the sites lack access to MLS statistics, they are frequently, and sadly, erroneous.
Understandably, home value is a hot topic with homeowners and the home’s appraised value versus what a homeowner can actually sell the home for are two issues which many sellers find confusing.
The market value of a piece of property is based on what a buyer is willing to pay and a seller will accept. It is reflected in the recent sales prices of similar homes, or “comps,” short for “comparable homes.”
Most home sellers rely on the skill and experience of their real estate agent to determine their home’s current market value. And, although they don’t call their determination an “appraisal,” real estate agents use many of the same valuation techniques as appraisers. They will base their determination on the following, when comparing your home to the comps:
• The size of the home
• Age of the home
• Condition of the home
• Location of the home
• Special features
Then, if the agent is familiar with your neighborhood, he or she will use any knowledge of recent home appraisals in the area to help narrow down a price for your home.
And, that is what knowing market value does for homeowners: it helps them determine a competitive price for their homes.
Appraised value vs. What you can get for the home
The appraised value of a home is that which is determined by a professional home appraiser. Typically hired by a buyer’s lender, this is the value determination that can make or break a home sale–regardless of whether or not the appraiser is correct. It is, after all, the appraiser’s opinion of value.
The appraiser will visit the home, taking measurements and notes. Back at the office, she will use many of the same techniques that real estate agents use, with the addition of public record information and other assistance.
Since there are a number of variables to consider, what you can get for the home is a bit trickier to pinpoint. If the buyer is using a mortgage to purchase the home, the appraiser has the final say in how much the buyer can borrow.
This doesn’t mean it has to impact how much you can get for the home. If the buyer wants to pay more than the appraised value, he or she will need to bring more cash to the table to make up for the shortfall from the lender. Many buyers, however, are unable to do this.
What you walk away with at closing also depends on your motivation during the sale process and how badly the buyer wants the home (his or her motivation). Your motivation is reflected mainly in the setting of a competitive price that will attract buyers.