OfflineEstablishing true value on a property is going to be so important when selling a property for profit. This will help us to make sure that we can purchase the property at the right price to be able to make money on the deal. I found this article that really gave me a little dose of reality that helped me with my calculation mindset and hopefully it will help you too.
How Much Is Your Home Really Worth?
Jan 14, 2014 By: Michele Lerner
If you’re thinking of selling your home, you may be fantasizing about the profit you’ll reap from the sale or calculating exactly how much you’ll need to pay off your current mortgage and have enough left over for a down payment on the next house.
Before your fantasies run amok you need to realize that, while you can estimate the value of your home in a variety of ways, the true value is only what a buyer will pay for it. That said, there are several ways to get a strong idea of how much a buyer will pay for the property in current market conditions.
What Your Home Isn’t Worth
Many homeowners find it confusing that there are various numbers floating around that indicate their home value. Here are a few:
• Property tax assessment. Each jurisdiction uses a formula to establish home values for a tax assessment, but this price rarely correlates with the market value of your home. Your tax assessment can be higher or lower than the current market value.
• Homeowners insurance value. Insurance estimates are based on the cost of replacing your home without the land, so this value is skewed compared to market value.
• Mortgage balance. Your mortgage balance simply reflects your home loan. The difference between your loan payoff and the market value of your home is your equity.
• Neighbor’s home value. Even if your neighbor’s home is similar to yours, it’s not likely to be identical. A REALTOR® can help you evaluate your home’s worth in the context of other nearby properties.
• Cost when you purchased the home. Regardless of how long ago you purchased your property, the value can have gone up or down.
• Desired value. You can always try to put your home on the market for your desired price, but if you’ve over- or under-priced it, you’re shortchanging yourself. because you’re either selling too low or your house could sit on the market and eventually sell for less than if you priced it correctly in the beginning.
Comparative Market Analysis
A REALTOR® can do a comparative market analysis with recent market data to help you estimate your home value. When you sell your home, an appraisal will be required by the buyers’ lender, so keep in mind that your home has to appraise for the selling price or, depending on how your contract is written, you’ll have to renegotiate the sale or the buyers will need to come up with extra cash.
A CMA is both an art and a science. While it’s based on data, it also requires local market knowledge and intuition about which homes to compare and how to interpret the prices. Most REALTORS® will look for recent sales of homes that are similar to yours, preferably within the past two or three months, up to about six months. In addition, a REALTOR® can look at other homes currently on the market and homes that didn’t sell that were taken off the market to compare values.
The comparison of your home with others should include not only the size and the number of bedrooms and baths, but also the condition of your home, the neighborhood and the proximity to amenities. If you do not understand the comparisons a REALTOR® is making, ask to see some of the homes currently on the market or look online at photos of the properties.
While it may be tempting to list your home with the REALTOR® who tells you it can sell at the highest price, a smarter way to sell your home is to price it as accurately as possible from the beginning. Studies show that an overpriced home that lingers on the market will end up selling for less than the estimated correct price.
I know this helped to give me a little dose of reality. I hope it helps you as well.
Happy Investing!
Matt W.
Hi Coach thanks, that CMA was interesting, I had a lady with a lake shore property( not much lake) and the house was run down and she wanted 150k because she believe it was move in ready and the CMA from the Realtor said with 30k invested in fix up she could get a return of 350-400,000 home and that was her selling point, I didnt see it with her comps of other homes in the area, that house needed upgrading in all areas( much more than 30,000) and it wasnt even finished buy her, she ran out of money and what she did was run down over the time she started with 7 years ware and tare, she had kids and pets, she gave 200,000 for it and she had to finishing gutting it even the windows didnt make sense for a home that would sell for that high of price, Jim
jbischoff
Some great information included here both by Matt and Jim.
Remember that there is only one value of any property and that is what a buyer and seller agree to. Everything else is just an estimate. Some estimates are better than others, an appraisal is the very best.
Most people believe that the next best is a Realtor's CMA, but there is also potentially another level of valuation in between. In most areas you can arrange for an appraiser to do a "Drive By Appraisal" or for a Realtor to do a "Broker's Price Opinion (BPO)." They both have a cost, but it is about 1/4 of the price of a full appraisal, and is more comprehensive than realtor comps or a CMA. If you have an executed contract on a property, it may actually be worth the price of these extra valuation tools in marketing your property. People tend to believe something that you paid for more than something that you did not. Cash buyers are no different.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
really appreciate it.
Thanks for your comment Walt.
For all, I had another area I wanted to cover that, based on many discussions, is very important. New investors starting out are often frustrated when they try to look up a property online, maybe check two different resources, and get very different numbers. Conversely, in some situations they will immediately accept what they find on a website without any questioning.
If you are expecting that valuation of a property will always be a simple matter of looking it up, like you would do in an automotive blue book, where it gives you a specific dollar amount for a specific year and model, then you are going to find this is a very different process.
As mentioned above, there is only one real value for a property, and that is what a buyer and seller can agree to. EVERYTHING else is just an estimate, and since there is varying data, and in some cases, very little data to go by, there are going to be wildly diverse estimates of value.
We do consider realtor comps and appraisals to be the best estimates because they have exclusive access to the best data sources--but even these methods can be off. To illustrate, when I purchased my current personal residence, the data that came back from the appraiser was somewhat different than the agreed purchase price, and would adversely affect my ability to qualify for a loan. I had already done research in the MLS database, and believed the appraiser to have been erroneous. We submitted our information to the appraiser and requested a review, which ended up exactly as I expected and wanted.
You have to view estimating After Repair Value as detective work, where every source you look at gives you clues, but not a precise and final value. Checking and comparing several sources may be necessary for some properties. One source that brings together the data from multiple other sources is www.totalviewrealestate.com, which draws from zillow, eppraisal, and trulia, and provides its own estimate of value.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
some great info from our coaches here....
well that's all nice information's and really very helpful. There are many ways to invest in property but to keep it up-to-date and user friendly everyone means the landlords should focus on proper tenant screening that will give them better option.