What’s Your Home worth?
There‘s a joke in the real estate industry that there are three ways to see a home’s value: The county assessor values your home as a castle; The homeowner values their home as a mansion; And the home-buyer values the home as a shack.
In my over 30 years in real estate, I have probably answered this question, “What is my home really worth,” thousands of times. Sometimes the people are excited and other times disappointed by the value I give them. But how do I go about determining the value of their home?
The easy answer is their home is worth what a buyer is willing to pay. Sounds simple doesn’t it? In actuality, it’s not simple at all. The process I go though is to determine what other buyers paid for homes that are similar to the home I am valuing, and make adjustments for things like location, condition, and upgrades. I look back over the last 6 months and try to stay within similar neighborhoods as their home is in. Once I find at least 3 homes that fit the bill, and make the necessary adjustments, I come up with an estimate of the home’s current value.
So, let me tell you what does not determine the value of a home. Unfortunately, a home’s value is not determined by what the owner paid for the home plus any upgrades they put in the home. It is also not determined by what internet companies like Zillow give you in their online Zestimates. If you read within Zillow’s website more closely, they even admit that their Zestimates are off, and the percentage they are office varies throughout the country.
In 2013, we still have many people who purchased their home at the top of the real estate bubble and the amount they paid for their home is far in excess to its current market value. Many of these folks are trying to ride it out and hoping the market will return to a place where they once again have equity and can sell. Others are at the mercy of their lender to either adjust their mortgage to something closer to its current value, or allow them to sell it for less than what they currently owe (Short Sale).
In reality, a home’s current value is a mix of what a buyer is willing to pay, what similar homes are selling for, and the price that competing homes are coming on the market at. In a market like ours where values are rising, it is difficult for an appraiser to determine its value based on past sales alone. If new homes are coming on the market and beginning to sell for more than those already under contract, then you must use experience and the best data you have to determine what a potential buyer will realistically pay.
So value truly can be in the eyes of the beholder, but will ultimately be determined by what two reasonable people can agree on.