March 4, 2018

 Do You Ever Search for a Homes Value and Get a lot of Suggestions, But No Solid Answers?


The next time you have a few seconds to burn do a Web search for “what’s my home worth?” 

Google told me it found “about” 435 million results last week. Two years ago, the number was 137 million to the same question.

Aaron Taylor
2018 NETAR President

If you scroll through the links you’ll find page after page promising to show you your home’s value if you sign up for a service, agents who will help get the best price, calculators that will guide you through the process and on and on and on. If you look hard enough, you’ll find some articles – some better than others - that discuss market values. But what you won’t find is a credible answer to your question. You may get something in the ball park, but don’t bet on it.

What about other sources?

Forget about your property tax assessment, or what your friends say they got for their home. The only real way to find out what your home is worth is to sell it. That may sound harsh, but fair market value is impartial, and it fluctuates.

Sometimes that's a tough issue for buyers and sellers to internalize. For instance, a seller's desire to recover the cost of an upgrade is not a factor considered by fair market value. It’s also a fact of life that most sellers overestimate the value of their home.

Buyers used fair market value in relation to local conditions as a bargaining chip when the market was down. But that doesn’t work as well these days. Inventory is low, and prices are up.

Fair market value is defined as "the price a buyer will pay, and a seller will accept under reasonable and ordinary conditions."  This academic definition assumes neither is under pressure to complete the transaction. 

 The two most common ways to get a good estimate of estimate fair market value are with a comparative market analysis (CMA) and an appraisal.

The CMA is done by real estate professions as part of their service to a client before a property is listed. Look at it as the marketing and negotiations benchmark.

Here's how the analysis is done.

The agent does a database search for all comparable properties that have sold.  The actual sales price is the working number, not the asking price. It's done that way because sellers can and often do ask whatever they want for their homes, but that's usually not what buyers are willing to pay. In January sellers were getting an average of 96% of their listing price.  That's been the norm for 10 of the past 13 months. Yes, some sellers get more. And, under the right conditions, some may get more than the listing price. But that's not the norm. The reason market watchers like to look at the average is because it does a good job of showing the distribution of conditions over the entire market.

Under ideal conditions, the CMA finds recent sales of homes that are the same size, age and in the same condition. They should be in the same neighborhood or close by. The more recent the sales, the better.

The second method to estimate fair market value is with an appraisal.

 An appraisal is a detailed assessment performed by an independent professional appraiser.   It should include a physical inspection of the property, verification of data through public records, an analysis of general market data, and the application of a valuation approach that is carried out according to professional practice guidelines.

With these two tools in hand, sellers and buyers have a good starting point to begin their marketing and eventually negotiations. Those who rely on short-cuts or don’t partner with a professional Realtor® run the risk of accepting less than they could have gotten or paying more than they should. 

Aaron Taylor is the 2018 president of the Northeast Tennessee Association of Realtors. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,200 local Realtor® members and almost 100 affiliates