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Location! Location! Location! Is the most crucial consideration in real estate and a major factor, if not the predominant one, in real estate pricing. Novice (and not-so-novice) home sellers alike must know the considerations – such as location – that determine a home’s price.
Setting the price at which to sell your home is not a simple formula, nor mathematical. Many elements factor into the decision. A calculated home value is not necessarily what you believe your home is worth. Recognizing this helps avoid overpricing, a major factor that leaves homes languishing or unsold.
Familiarity with the real estate terms market value save disappointment and frustration, and allow the home seller to more meaningfully engage in setting a home’s listing price.
The most-used definition of market value is
“the most probable price a property should bring in a competitive, open market under conditions requisite to a fair sale.”
Essentially, this is a pre-negotiation opinion of what a house should bring in its local market, i.e., its geographical area, generally an area such as s suburb or neighborhood.
Appraisal value is an evaluation of a property’s worth at a given point in time that a professional appraiser will perform. Appraised value is a crucial factor in loan underwriting and determines how much money may be borrowed and what terms. For example, the Loan to Value (LTV) ratio is based on the appraised value. Where LTV is greater than 80%, the lender generally will require the borrower to buy mortgage insurance.
Accessed value is the amount local or state government has designated for specific property and frequently differs from market or appraisal values. This accessed value is used as the basis of property tax and when a property tax is levied. The access value of real property is not necessarily equal to the property’s market value. Approximately 60% of U.S. properties are assessed higher than their current value; however, this does not reflect the home’s value.
Online Home Valuation
Online tools provides you with a very basic estimate of your home’s current value based on recent comparable home sales in your area using a comprehensive database. Note that the assessment is based on available data with no guarantee of accuracy and often uses an algorithm that simple averages comparable sales in the geographic area. These tools might be quick and easy, but they don’t take into consideration factors like location, current local trends and the condition of the property. Be aware that prices arrived upon might be highly inaccurate.
For example, a home in Ohio was put into one such system, Redfin. The home last sold for $180,000 in 1998; it was appraised for refinancing in 2015 at $275,000. In 2017, Redfin’s calculator valued this 1890 Victorian home (4 bedrooms, 1.5 baths and 2,100 sqft) in a four-block area of “Grand Old Ladies” at $158,000. The apparent reason is that the six “comps” (comparable recent sales) included only 2 homes in this desirable neighborhood )over $300,000), while four others outside this small neighborhood, although close, sold for $150,000 to $199,000. Because the system doesn’t understand the makeup of the area and simply pulled prices from a broader geographic area, the arrived-upon price was far below what it should have been. These tools are worthwhile for obtaining “comps” of area sales; however, they are not highly accurate in arriving at a listing price.
Excerpted from my book “Selling Secrets – You Can’t Afford to Miss”
Ricardo Parente, Realtor®
Coldwell Banker Realty | Winter Park, FL
