October 9, 2016

Rely on professionals when asking, “what’s my home worth”  


The next time you’re at your computer, or screen of choice, and have a few seconds to burn do an Internet search for “what’s my home worth?” 

Google said it found “about” 592,000,000 items matching that question when I asked.

Scroll through the items and you’ll find ads promising to show you home’s value if you sign up for a service and agents who will get you the best price. There are calculators to guide you through the process and on and on and on. If you look hard enough, you’ll find some articles and blogs, some better than others, that discuss market values. What you won’t find is a credible answer to the question about your home. You may get something that could be in the ball park, but don’t bet on it.

What about other sources?

Forget about the value attached to your property tax assessment, or what your friends say. The only real way to find out what your home’s worth is to sell it.

Real estate professionals know fair market value and are impartial. Sometimes that's a tough issue for buyers and sellers to internalize. For instance, a seller's desire to recover upgrade cost 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. That trump card doesn’t play as well these days. Today’s local market is not quite a sellers’ market, but buyers’ don’t have the muscle they used to have.

Technically, 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 the buyer nor seller is under pressure to complete the transaction. 

 The two most common ways to estimate fair market value are with a comparative market analysis (CMA) and a real estate appraisal.

 Let's look at the CMA first.

The CMA is done by real estate professions as part of their service to a client before an offer is made on a potential purchase or before a property is listed for sale. Look at it as the benchmark for marketing and negotiations.

Here's how the analysis is done.

The agent does a database search for all comparable properties that have sold.  These actual sales price is the working number, not the asking prices. 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. Currently, the asking price for a little more than 1-of-every-3 homes in our area has been reduced because buyers rejected the initial asking price.

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 current the sales, the better.

Getting good CMA in today’s market is easier than it was a couple of years ago when the market was down. Even now it can be an issue because although lenders have eased some standards they can be demanding about recent sales in closer proximity to the property in question. This can be an especially true for higher priced homes.

 Despite the wealth of real estate information that's available on the Web, valid price comparisons can't always be done with just sales information from public sites. The best data comes from the largest databases, and those are not the public access sites. There’s also the weight of personal inspection and evaluating of data with a trained eye by professionals who know local real estate market conditions.

 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 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 negotiations. Those who rely on shortcuts 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. 

Marsha Stowell is the 2016 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 1,000 local Realtor® members and almost 60 affiliates