Homeowners are always curious to know just what their home is worth and how to accurately determine this. Buyers of homes want to know what the true value of a home is that they are interested in and how to find that value. Sellers want to know what is the best price to list their home for to achieve the highest price and a relatively quick sale. What is the best way of determining these values?
Let’s start with Assessed Value. This is the value that is assigned to a home by the county tax assessor and used as the value to determine the amount of property tax that will be collected. This number comes from a general knowledge of the real estate market in a particular neighborhood, as well as the economy for the region, state or city. The tax assessor attempts to come up with a value based on what homes are selling for as of January 1st of the tax year and sets their Assessed Value as of that date, regardless of how the market is trending. Tax assessors rarely know the condition of the home, if it has been remodeled and perhaps even the size or number of bedrooms. All that they can go on is the square footage as indicated on the tax rolls and the outside appearance and location. As a result, assessed values tend to be conservative. This is a good thing for the homeowner as their tax value tends to be lower than the actual value. So, buyers looking at the tax roles for help in determining price are frequently misled.
Appraised Value is determined by a licensed appraiser and is a snapshot of the value of a property at a particular time. An appraiser can only look at what has sold in the past 6 months in the same neighborhood or sometimes they must go to similar neighborhoods. Other properties that are listed for sale or have contracts pending cannot be used for an appraisal. The appraiser then compares the subject home to the recently sold homes and either adds or subtracts value based on condition, location, size, amenities and market trends. If the market is rising, the appraiser adds that to the equation, if the market is dropping, then that is figured in. When a home sells, typically the lender orders an appraisal to determine if the home is worth what the purchase contract is for. This can cause quite a bit of confusion as the property will often appraise for the purchase price, whatever that is, even though it could be worth more. (All the lender wants to know is if the property is worth what they are lending). While far more accurate than the Assessed Value, the Appraised Value may not quite accurately reflect the true value. A seller in a distressed situation could accept an offer that is lower than Market Value and the appraisal will only show the contract price. Yes, the appraisal could reflect that the home sold below market, but they rarely do.
Which brings us to Market Value. Quite simply, this is the price that a qualified buyer is willing to pay for a particular property at a particular time.
This is the price that real estate agents are tasked with determining. Like the appraiser, we look at what has sold in the neighborhood and how the properties that have sold compare to the subject property. Unlike appraisers, we can and do use properties that have contracts accepted but not yet closed as well as recently listed properties, as these give us an even more accurate picture of the market. For example, if the last closed sale in a neighborhood was three months ago and the market is changing, either up or down, properties that have recently gone “under contract” will more accurately reflect the market as it is today. The same can be said for newly listed properties…what is the trend? Along with all the criteria that an appraiser uses (as noted above), we will also look at other variables such as how the home flows, street appeal and how the home strikes a potential buyer. While this is very subjective, we come up with this from our knowledge of showing homes to buyers and listening to their reactions. Then, like an appraiser, we evaluate all of this, add our experience and come up with our best estimate of what a buyer will pay for the home both today and in the very near future. Remember, we have to anticipate what the market will do during the time of the listing. While both the real estate agent and the seller like to think that they determine the price, it is really the buyers that determine the final price.
Each home is unique and has many memories for the owner which often influences them in determining value. However, tax assessors and appraisers can only use the physical attributes of the property, the market trend and the overall economy to determine a value. Real estate agents use the same but frequently add in emotional attributes. This is why I ask my sellers…” What is it about this home that made you fall in love with it? What do you like most about it?” This is as important to convey to a new buyer as are the physical features of the home.
Determining the correct value of a property is a complicated task and should not be done quickly or without a complete understanding of both the real estate market and the property.