How much is my home really worth, and how do I calculate this?

How much is my home really worth, and how do I calculate this?

Wow! What a question!

Now you are really getting to the crux of the matter.

Let us start here by explaining exactly what your house is NOT worth!

Your home is NOT worth:

What you have invested in your home.

What you NEED or WANT out of the property.

A bank or tax appraisal.

What you heard your neighbor's home sold for.

Insured value.

The cost of the next home you want to purchase.

If you have been thinking along any of these lines – forget it – right now – let it go!

Your house is worth exactly what a willing buyer is prepared to pay for it – no more and no less! So, it really doesn’t matter what YOU think it is worth – it is what the buyer thinks it is worth that matters!

Now that we have got some of the most common misconceptions out of the way, let’s look at what may impact a buyers perception of what your house may be worth.

In the eyes of a buyer, your homes value is determined by the following:

Today’s market place.

Competing properties available to the buyer.

Available financing.

The buyers “perception” of your homes condition and appeal.

What buyers have recently been willing to pay for similar properties.

Supply of properties and demand for properties (lots of sellers and few
buyers lowers the value, lots of buyers and few sellers increases it)

Location.

General economic condition of the area.

Now, I know you are itching to ask some questions about this – and I am sure that the biggest question you have is “If the value of my home is determined by the buyer, how the heck can I determine what my selling price should be?”

The best way to do this is to seek professional advice. Now here is a little tip for you – and I am sure that the team at avhomeconsultants.com would shoot me if they saw I was telling you this! There is a way to get professional advice on what your house is worth at absolutely NO cost to you.

Most professional real estate agents will do what is called a comparative market analysis, at no charge, if you contact them and ask them for help. The reason they do this is that they are hoping to get you to appoint them as selling agent, should you decide to sell your house. They will then gain a commission from the sale when that occurs. So, they are quite willing to invest some time into doing a comparative market analysis for you.

A comparative market analysis will tell you all the information you need to understand what a potential buyer will be thinking about when he or she considers your house. The analysis is simply an examination of house sale records in recent weeks to determine what houses similar to yours in size, location and general condition have been sold – and what the actual selling price was.

In other words, this analysis is telling you exactly what BUYERS have been prepared to pay for houses similar to yours. There is no other method that can tell you as quickly and as accurately the real value of your house is as this – and it can be free to you.

When you contact a professional agent and tell him you are considering selling your home, and ask him to come visit you – request that he bring a comparative market analysis with him. He will be happy to do this, and will help you determine what a realistic value for your home should be. There is no obligation on your part to appoint that agent as a sellers agent. This is only the first step in the process of selling your home.

Now, there are a few traps to watch out for. Some less professional agents may be manipulative in the way they produce the comparative market analysis so that they can show you that your home is worth even more than you expected. If an agent tells you that your home is worth considerably more than you expected, be very wary – he could be “buying a listing”. He does this by convincing you that he can get much more for your home than you expected, so you should appoint him as your agent so he can do it for you.

This is a very wrong answer. And a trick you should be very wary of. See How do I select the best realtor? for a detailed explanation of how you should select a realtor to sell your house. Promises of a high sales price is not a reason. Choose an agent that can do the job, not the one who blows the most smoke!

When determining a price for your home, remember this – an overpriced home can do more harm than you think – indeed it can lead to you receiving less money than if it was priced at a lower value to start with.

Hazards of overpricing include:

Lowering agent and buyer responses.

Minimizes profits.

Creates a reputation problem.

Increases risk of appraisal problems.

Lengthens marketing time.

Causes frustration, false hopes and inconvenience.

We have seen how an agent might inflate prices, and why – but sellers are not completely innocent either.

In many cases sellers will base their expected value on the fact that a neighbor just sold his house for $175,000 therefore he wants the same for his house which is even bigger. This seller has conveniently forgotten that it took over 12 months for his neighbors house to sell, that his neighbor had to finance a second mortgage for $20,000, and had to recarpet the entire house and remodel the kitchen.

Duh!

Another equally silly situation is the MIOP approach to valuing your house. MIOP stands for “Money I Owe People” and it is amazing how frequently we hear something like “My house is worth $150,000 because I have a 125% mortgage on it and that is what I need to get out from under the mortgage”. WHAT BUNK!

This approach is almost certain to guarantee that the house will not sell. It is impossible for this seller to look at the value of his home in any sort of rational way. Even if an unsuspecting buyer were to offer full price for this house, the whole deal would get scuttled when the appraisal came in at $130,000 or less.

So, the moral to all this is that there is ONLY one way to arrive at a true value for your home, and that is to have a professional real estate agent prepare a comparative market analysis for you. This will not cost you anything. However, be aware that some agents may try to inflate this value to entice you to list with them.

Remember – this is your home, so you need to make your own conclusions about what to ask for your home. And be wary of who you choose to assist you in selling your home.

AV HomeConsultants will be able to refer you to professional real estate agents in your local area who will be pleased to help you determine a fair value for your home based on a comparative market analysis. Just email us some information and we'll do all the rest.