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Determine Your Home’s Market Value
Excerpted from Sell Your Home Without a Broker by Joseph P. DiBlasi ©2005
One common problem affecting FSBO sellers is their inability to objectively view their home and price it fairly. Many believe that their home is unique or extra-special, and consequently attempt to sell it at an unreasonable price. People in the home-buying market are not impulsive buyers. They take their time—an average of seven to eight weeks according to www.realtor.org—to compare an average of ten homes before buying one. Therefore, they are somewhat sophisticated and will be able to sense when a home is overpriced.
A home that is overpriced will sit. A home that sits for a while will become stale and lose the appeal of being new to the market. Unlike new-to-the-market or just-listed homes, stale homes do not entice interested buyers to quickly make an offer before the home is snatched by someone else. Instead, the perception with buyers is that they have plenty of time to compare other homes before seriously considering yours.
Similarly, I have encountered some people who have completely undervalued their home and sold it for much less than what they could have gotten using a broker. Typically, this occurs with elderly people who have not bought or sold a home in many years and who are not in tune with the market. I recently had an older gentleman in my office whose wife had recently died. He was contemplating selling his home and told me that he thought he could get $200,000 for it. Being familiar with his town and his street, I was happy to advise him that he could sell it for nearly double that price.
Unless you are a keen observer of the local real estate market, you will not know the fair market value of your home. Indeed, many professional real estate agents who use comparison methods to estimate the fair market value of a home are often off considerably and are surprised by the actual selling price. Real estate is not a commodity.
It is, almost by definition, unique. Consequently, the comparison process only provides a very superficial basis for price estimation.
There are many characteristics of a home to compare, such as:
- age;
- style;
- size of the house;
- size of the lot;
- size of the rooms;
- location within the town;
- location of the house on the street;
- location of the house on the lot;
- • exterior view;
- vicinity of services and conveniences;
- reputation of the town or city and the school system;
- number of bedrooms;
- number of bathrooms;
- number of levels;
- quality of construction;
- reputation of the builder;
- condition of home;
- beauty of the landscaping;
- architectural layout;
- size of driveway;
- exterior of home;
- interior design;
- special interior features (such as central air-conditioning and alarm system);
- special outside amenities (such as pool, sprinkler system, deck, and shed); and,
- topography of the lot (usable flat lot or steeply sloped).
Fair Market Value
Fair market value is defined as the price a willing buyer pays to a willing seller. The fair market value of your home is a function of many variables. Most of the characteristics of your home as set forth in the preceding section are variables that are beyond your control.
For example, you cannot change the location of your home or the topography of the land. Therefore, if the location of your home becomes more desirable (for example, as a result of its vicinity to a development of newer and more expensive homes), with all else being unchanged, the value of your home will increase.
Some variables that affect your home’s price are beyond your control, but have little or nothing to do with your home. The condition of the local economy, the level of interest rates, and the amount of similar homes on the market are all good examples of this type of variable. If you are lucky enough to place your home for sale when there is a booming local economy, low interest rates, and few homes for sale, the value of your home will be considerably higher than if these variables were different.
The fair market value of your home is also a function of variables that are not beyond your control. The condition of the home and landscaping, and the quality of your advertising and marketing campaign, are principle variables that you have almost total control over. The prudent seller should look at all of these variables when considering the price to ask for the home. I have seen homesellers, including those using brokers, underestimate the favorable seller’s conditions or fail to make simple, cost-effective improvements. Consequently, they lost a significant amount of money when they sold their homes.
Comparison Method
The most accepted manner for determining the fair market value for your home is the comparison method. In theory, the value for your home can be approximated by comparing your home and its features with other homes nearby that have sold recently. This method can be pursued in one of two ways—formally or less formally. To determine the fair market value formally, a licensed real estate appraiser is needed. A licensed real estate appraiser, as a result of training and certification, is the foremost authority on evaluating the value of real estate. You can expect to pay $250–$500 for a full appraisal. An effective way to locate a qualified and licensed real estate appraiser is to call the lending department of your local bank. Lending officers work closely with licensed appraisers and will be able to provide you with a couple of names.
The appraiser will come to your home to inspect and evaluate it. He or she will make note of all of the characteristics that make your home unique. Next, he or she will locate up to five similar homes in the area that have sold recently. Appraisers try to use homes that have sold within the last three or four months for comparison. Using older sales will compromise the integrity of the process, as the market conditions going back more than three or four months are likely different than they are at present. While an appraiser will make note of most, if not all, of the items in the list of how homes differ, the actual variables he or she uses for comparison will likely be:
- location of home;
- size of lot;
- exterior view;
- design and appeal;
- quality of construction;
- age;
- condition;
- gross living area;
- whether there is a full basement and whether it is finished;
- the condition, quality, and amenities of the utility systems;
- whether there is a garage;
- whether there is a porch, deck, patio, or fireplace; and,
- outside features, such as pool, shed, and fence.
The appraiser will use a grid table to display the results. There will be one column for your home and one for each of the other homes used for comparison. The rows of the table are for the variables considered for comparison.
Comparative Market Analysis
The less formal approach to determining your home’s worth is to perform a comparative market analysis (CMA). This approach does not entail the thoroughness of the features and variables comparison, or of the specific positive and negative dollar value adjustments seen in the appraisal. Rather, it is performed by reviewing the selling price of visually comparable nearby homes, and comparing the homes on a more basic and superficial level. As a consequence, the resulting value determined by a CMA is
