Valuation – A Primer
Many of my clients ask me, “how do you evaluate my home?”
Many metrics establish home value; the primary is the multiple listing service. If I am looking to “list” a home for sale, I research what has sold in the surrounding area of the “subject” home.
Before that, I check public sites such as Trulia® and Zillow.® Both are search engines and do not rely upon Realtor® Valuation Models but algorithms based on closed sales through the tax rolls.
An appraiser advised me that because of all the short sales and foreclosures, he not only considers closed sales but actives and pendings. “If I can buy the same house down the street as a short sale, I consider that when appraising the subject home.” This was unheard before the short sale era.
Among the newest metrics is RPR (Realtor® Property Resource), a national database provided through the National Association of Realtors.® I research histories, photographs of previously listed properties, charts and graphs of neighborhood sales and add value based on condition and recent remodeling and upgrades. The report is extremely informative, and without explanation, overwhelming.
The best snapshot of the market is Facts & Trends.™ These graphs present sold, pended and closed properties in a neighborhood or zip code as well as average price per square foot, average and median prices, and months of inventory. The supply of inventory in the real estate industry is defined by the current months’ supply of homes available for sale. Here is a great guideline:
- 1-4 months’ supply creates a seller’s market where there are not enough homes to satisfy buyer demand. Appreciation follows.
- 5-6 months’ supply creates a balanced market where historically home values appreciate at a rate a little greater than inflation.
- 7-8 months’ supply creates a buyer’s market where the number of homes for sale exceeds the demand. Depreciation follows.
Proper pricing is difficult, even among the most experienced of professionals.
Ken H. Johnson, Ph.D., (FIU), Editor of the Journal of Housing Research, explained that proper pricing has been studied by professor and author, John R. Knight:
“The findings . . . indicate that, on average, properties which experience a listing price change take longer to sell and suffer a price discount greater than similar properties . . .
Sellers as well as Broker/Agents should therefore be aware of the critical necessity of getting the price correct from the start. Sellers wanting to over list will ultimately take longer to sell and will sell their property for less, on average, according to Knight. Brokers/Agents’ desire to take a listing and get the price right later will ultimately lead to their working harder according to Knight, and they are not doing their sellers any favors. Thus, an initial and detailed analysis of the proper price is much more critical than many originally thought.”
If you, or someone you know, desire a comprehensive, comparative market analysis of a property, please contact me immediately. I would be more than willing to accommodate!