Not All Values Are Created Equal...(Part 5)
The term “value” can mean different things with regard to real estate. Most home owners are familiar with their “assessed value” which is the basis for your property taxes. Although the assessed value sometimes corresponds with its market value, often it does not. You might hear the term “appraised value.” This value is determined by a state licensed or certified real estate appraiser, and is the value banks use to determine whether or not a property is loan-worthy. You will hear this term if the buyer of your home is using a lender (bank) to get their purchase money. Another type of value you might hear referenced is a “Zestimate.” This is a number that the internet site, Zillow, uses as an estimate of value for properties on their website. Although it is becoming referenced more and more often by consumers, this figure is not to be relied on in any way. Finally, "Replacement Value" represents the amount of money your insurance company will reimburse you for if something catastrophic happens to your home.
When it comes to selling your home, a Realtor’s “market value” is the most important number to rely on. A reputable agent uses a similar process that a licensed appraiser uses in determining value, and develops a report called a Comparative Market Analysis (CMA). Like an appraisal, the CMA compares recent sales and current listings of homes that are similar to yours in terms of size, location, lot size, bedroom/bathroom count, and amenities. These recent sales and listings are referred to as “comps.”
The most reliable comps will come from the Multiple Listing Service (MLS) which is a member organization of real estate brokers that allows members to see one another’s home listings. The source of the information must be cited (ie: town records as a source) making this the most reliable source of listing information. Most Realtors are members of MLS and receive daily (hourly!) information about new listings coming on the market. MLS keeps historical information on all property transactions long after the sale has closed. Realtors enter the data about a property into MLS including its physical and municipal characteristics, along with some exterior and interior photos. The MLS listing gives a Realtor a very good understanding of a comparable property. At this point, the important thing to know is that MLS is the only reliable source for the comps that will be used to determine an effective list price for your home.
After identifying 5 or more good comps, the agent makes adjustments to their sale prices for differences between your property and the comps for factors such as location, size, number of bedrooms/bathrooms, lot size, and other amenities. They also rely heavily on their knowledge of your community (“market area”) and area trends. Based on their analysis, they come up with a recommended market value, or list price, for your home.
The CMA report may look complicated with a lot of numbers, graphs and charts, but much of this is “boiler plate,” or information about their company and/or general market trends. Although most sellers want to skip right to the recommended market value, it’s worthwhile to review the comps and any discussion about neighborhood trends to have a better understanding of where your property fits in the overall market. In general, are prices going up? Are they flat? Declining?
It is not unusual for a homeowner to disagree with the agent’s suggested market value or list price. Long term homeowners tend to have a strong emotional attachment to their homes where they have likely raised children and shared family gatherings. Unfortunately, most buyers are focused on seeing how their family will work in your home. If you’ve used your best judgement in selecting your Realtor, you can have confidence in their suggested list price. This is their job!
Ultimately, the pricing of your home will determine if and when it will sell. It can't be stressed enough that pricing is more of an art than a science! That being said, you want to make sure you select an agent who can price your home effectively. Real estate is not a product, but rather, a commodity. Whereas products have fixed prices, the price of commodities tends to fluctuate with supply and demand. How you price your home should reflect the prevailing market conditions (supply and demand) in your area. Again, your Realtor can best help you understand what's going on in your town and neighborhood. They can also recommend a specific pricing strategy. A listing price at the high end of the market value range may result in your home being on the market for longer period of time. The lower end of the range may drive buyer-interest and create demand, resulting in "multiple offers" to chose from.
Once you and your Realtor have determined an effective list price, you'll want to get your home ready to market. This is where the "hands on" work takes place, but you don't need to do it alone! More about that in the next section.