Everyone has an opinion; appraisers, realtors, buyers, spouses and now there are even computer programs that try to evaluate your home’s value, like Zillow and others. Who is actually correct? We will get to that in a moment. Let’s start with programs like Zillow, how accurate are they? These systems do give an indication of value however they are far from accurate. I have seen them off by as much as 20 percent in either direction. They do not take into account many local factors that are critical to pinpointing value. Things like condition, remodeling, views, lot usage, floor plan, quality of construction and dozens of other important factors. They do show trends in the market place as it relates to appreciation and depreciation. If you want to know what your grandmother’s house is worth in Des Moines, Iowa, you certainly can get a rough idea. But if you want to know exactly what it will sell for, programs like Zillow can be far off the mark.
What about Realtors? They are an excellent source for identifying value, but keep in mind, there are thousands of them out there, and unfortunately, the majority of them do not actually do that much business and can be far off in their evaluations as well. If they haven’t had a listing in a while they may be a little generous in their evaluation in order to win over a client by quoting a figure they think the owner wants to hear. Pick one that knows your city, your neighborhood and has tremendous amount of experience, both selling and evaluating properties.
Appraisers? They must be right: that’s what they are paid to do. Well, sometimes that is the case, but many times it is not. Appraisers are forced to follow a defined set of rules when appraising properties. They must use three recent sales in the area that have sold in the last 90 days. In some areas, it’s difficult to find three similar properties that have sold in that time frame. When this happens, the appraiser has to use other criteria, and this is where inaccuracies show up and can create frustration for sellers trying to refinance or even sell their home. We see this in appreciating markets, like the current one, where buyers are willing to pay more than what the last home sold for, which creates an appraisal problem.
The true value of any asset, including real estate, is ‘Market Value’. Market value is defined as what the market will bear or, in other words, what a buyer will actually pay for your home. This doesn’t mean that if your neighbor knocks on your door and offers you $100,000 for your beachfront home that it is worth $100,000. Your neighbor is not the ‘Market’—he is just a hopeful dreamer. The market must be reached and made aware that you are contemplating selling, thus creating a competitive environment. Today, the internet has brought the market extremely close. In a matter of seconds, the world can know you are thinking of selling. So the real value of your home is what a ‘Qualified’ buyer will pay for your home after it has been exposed to the market place. I emphasize ‘Qualified’ as countless times I have heard, “But Ed, someone offered me 2 Million dollars for my home – they just couldn’t close or come up with the money. So it must be worth that much.” Sorry, but many times buyers who are not qualified to buy a home will make exciting offers but never close. Talk to a buyer who is actually qualified to buy your home, ask them what they will pay, and you will discover true value.
In conclusion, there are many opinions to consult if you are thinking of selling your home. Use all of the available information to identify the most strategic asking price as close as possible to what you believe market value is. Hire the best real estate agent you can find who will promote your home to the entire market, negotiate intelligently and you will discover exactly what your home is worth.