My House is Worth What?

August 19th, 2010 — Categories: Selling a home

Weigh the options to find your home’s value

Guessing the value of hand soap on a game show isn’t all that dicey, but throwing a random number on your “for sale” sign is risky if you’re trying to sell. Before you settle on a price, try one or more of these valuation methods:

Automated Valuation Methods

The Process: Automated valuation methods (AVMs) are online programs that use public home sale records, demographics and property characteristics to find your home’s value. You key in your home’s information, like the location, square footage and number of bedrooms and bathrooms, and the software returns with an estimated value.

Pros: AVMs are quick and easy, and many are free. AVMs are a great way to watch trends in value, because they gather statistics from public records.

Cons: “It’s just software, so if you have a home that’s next to the freeway, or if your neighbor painted his home purple, which detracts from your home’s value, there’s no way it can know,” says Jay Thompson, designated broker at Thompson’s Realty in Phoenix, Ariz.
The software isn’t great at nailing the specific value of your home — it might tell you your overall value is decreasing, but it might not get the actual value correct. Areas with fewer sales will be even less reliable because the pool of data is smaller.

Also, national AVMs often aren’t as reliable as local software. “They’re actually a complete waste of time in New York. What we do have are Property Shark and Street Easy, which are local to New York,” says Wendy Sarasohn, senior vice president at Corcoran in New York, N.Y. “These two services are affiliated with the different brokerage companies, so they’re getting actual closing prices.”


The Process:
The first step of an appraisal is a property inspection, where the appraiser takes notes about what the property has and what it’s lacking. For example, says Leslie Sellers, president-elect of the Appraisal Institute and appraiser in Knoxville, Tenn., if a home has two bedrooms and the market for the area usually demands three bedrooms that would negatively affect the home’s value. Appraisers also look for defects in the home that buyers typically ask to have fixed before they sign on the dotted line.

Then the appraiser sits down and crunches the numbers, comparing the house to others that have recently sold or are for sale in the neighborhood. “If it’s bigger than a house that sold, we might adjust the price upward…if it’s smaller, we would adjust it downward,” explains Sellers.

Next, the appraiser gives the homeowner the facts: Information about the homes in their area competing for buyers, a list of things that may add value and appeal to the abode and, of course, a recommended listing price.

Pros: “Appraisers are disinterested and objective,” says Michael H. Evans, a Fellow of the American Society of Appraisers and owner of Evans Appraisal Service in Chico, Calif. “A broker is trying to get a listing, whereas we’ll tell you the truth whether you like it or not.”

Appraisers can also discover problems that could delay a sale before you put your home on the market. For example, if an appraiser notices you’ve added square footage without a building permit, they’ll send you to the building department to resolve the issue before you sell.

Cons: No appraiser is going to assess your home’s value for free. The home review will cost between $200 and $500, depending on what part of the country you’re in.

Also, not all appraisers are created equal — people that are inexperienced or new to the area might not have the breadth of knowledge necessary to pinpoint your home’s value. When looking for an appraiser, be sure to look for someone licensed at the state level and accredited by a national professional organization, like the American Society of Appraisers or the Appraisal Institute.

Comparative Market Analysis (CMAs)

The Process: After looking at the house, agents usually start the process with a look around the neighborhood for “comps,” or comparable homes that were recently (usually in the past three months) sold in the area. In suburban areas, comps usually come from the half-mile radius around the house.

In especially dense areas, like New York City, where a $25 million pre-war co-op could be a block away from a building full of $2 million dollar post-war apartments, comps typically come from inside the apartment building, says Sarasohn.

In a falling market, it’s equally important to look at pending sales because they are the future comps for the house. “Sometimes the agents will tell you the sale price, sometimes they won’t, but you can use a median of the sale prices to see where things are going,” explained Elizabeth Weintraub, broker associate at Lyon Real Estate in Sacramento, Calif. You can then adjust down a percentage based on the softer market.

In a foreclosure-heavy city, that can also play a part in the agent’s recommended sale price. “One other foreclosure in the neighborhood doesn’t really affect your price, but when 4 out of 5 sales in the neighborhood is a foreclosure…those are the comps,” says Weintraub.

Sarasohn also asks six or seven colleagues from other firms to price the home. “Sometimes I’ll say whoever gets closest to sale price gets some kind of award, like house seats to a Broadway play or gift certificates, so there’s an incentive to think about what they’re saying,” she says.

Pros: CMAs are typically a free service, and you can (and should) get the numbers from multiple agents before you choose a listing agent. Agents have access to the same information and records as appraisers, but typically don’t provide as much detail in their report, says Dee Hake DeMolen, a broker and realtor in Dover, Del.

Cons: Real estate agents have a motive for doing a CMA for free — they want to list your home. As a result, some will recommend you list your home at a price higher than the market rate in an effort to get your business.

“I always encourage sellers to list the apartment where we think the market is, but sellers make the mistake of saying, ‘Well, another broker said could get me X amount.’ No broker can determine what they can get — the market determines that,” cautions Sarasohn. To avoid this, get estimates from three agents at three different companies, and don’t necessarily choose the highest offer.

Also, some agents are better at doing CMAs than others. To make sure you’re getting the right information, ask each agent to explain their process so you can understand how they’re crunching the numbers.

From HGTVFrontDoor


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