Understanding the Market Value of a Home if you are a Buyer
What’s a Home Actually Worth? How to Think about What You Will Pay in Today’s Market
It’s easy to look up how much money you have in your savings account or the real-time value of your stock investments. But determining the dollar value of a home is trickier.
As a seller, knowing a home’s worth helps to price it correctly when it is put up for sale. If it’s priced too high, it may sit on the market. For buyers, it’s important to know a home’s worth before you make an offer. You want your offer to be competitive, but you don’t want to overpay for the property.
The good news is, a trained real estate agent can determine the true market value of a property that you’re considering.
THE THREE TYPES OF HOME VALUES
When you start the process of buying a home, you’ll frequently hear the words appraised value, assessed value, and true market value. It’s important to know the difference between each one so you can make better, informed decisions.
A professional appraiser is in charge of determining the appraised value of a home. These appraisals are typically required by a lender when a buyer is financing the property. And while the lender is the one requiring this information, the appraiser does not work for the lender. Your appraiser should be an objective, licensed professional who doesn’t have allegiance to the buyer, seller, or lender—no matter who is paying their fee.
The number the appraiser comes up with (the appraised value) assures the lender that the buyer is not overpaying for the property. For example, imagine a seller lists a home for $600,000. They reach a deal with the buyer to sell the home for the asking price. However, if an appraiser evaluates the property and determines that the appraised value is actually $570,000, then the lender will not lend for an amount higher than that appraised value of $570,000.
When figuring out this number, an appraiser will compare the property to similar homes in the neighborhood, and they’ll evaluate factors such as location, square footage, appliances, upgrades, improvements, and the interior and exterior of the home.
The assessed value of a home is determined by the local municipal property assessor. This value matters when the town calculates property taxes each year. The lower the assessed value, the less property tax.
To come up with this value, the assessor will evaluate what comparable homes in the neighborhood have sold for, the size of the home, age, overall condition, and any improvements or upgrades that have been made. However, most assessors don’t have full access to the home, so their information is limited.
Assessments are done every 5-8 years in most towns in our area to ensure that all houses are being evaluated equally based on current market conditions. Many towns use a multiplier (typically between 60%-80%) to calculate the final assessed value. So, if the assessor determines that the value of the home is $300,000, but the county uses a 70% multiplier, the assessed value of the home would be $210,000 for tax purposes.
Assessments will reflect the market value of the house based on the year in which the assessment was done, so the value may not match the current market value when you are buying a new house.
True Market Value
True market value refers to the value that a buyer is willing to pay for the property at any given time and will fluctuate over time as the market, and supply and demand, changes. A good real estate agent is an expert in determining true market value because they have hands-on experience buying and selling properties. They understand the mindsets of buyers in your market and know what they’ll pay for a desirable house, townhouse, or condo.
Having an agent involved in this process is essential because they understand the market better than a computer ever could. They’re showing property in the market every single day, and they know the particular preferences of buyers and sellers in the area. Young professionals, large families, empty nesters, and other groups are all looking for different things in a home. A local agent has most likely worked with all of them, so they understand what every segment in your market is specifically looking for.
HOW AN AGENT FINDS A HOME’S TRUE MARKET VALUE
So, how does an actual real estate agent determine true market value? They’ll start by doing a comparative market analysis (CMA). This means they’ll compare a home’s features to similar properties in the area. For the CMA, the agent looks at the below factors to influence their assessment of your home’s worth:
● Neighborhood sales - Your agent will look at similar, recently sold homes in the immediate neighborhood to see what they sold for and what they have in common with this house.
● The exterior - What does the home look like from the outside? Your agent will factor in curb appeal, the style of the house, the front and backyard, and anything else that impacts how the house looks to everyone walking and driving by.
● The interior - This is everything inside the walls of the house. Size, number of bedrooms and bathrooms, appliances, and more all influence the overall market value.
● Age of the mechanicals - Whether the roof, furnace, AC system, kitchens and baths are newer or updated makes a difference.
● Market trends - Because a local agent has so much experience in their market, they have their finger on the pulse of the area’s trends and know what buyers are willing to pay for a comparable property.
● Location, location, location - This one’s probably the most obvious.
A computer algorithm simply can’t take all of these factors into account when calculating the value of a home.
Determining a home’s true market value is a real estate agent’s forte. Your agent will help you determine the value so you can come up with a fair offer.
Get a Complimentary Report With Your Home’s True Market Value
Curious about your home’s true market value? Call us to request a free, no-obligation Comparative Market Analysis to find out exactly how much your home is worth!