July 26, 2023
4 ways to figure out your home value
A right-priced home will sell faster and have fewer hassles during the negotiation and appraisal process. Here's how to figure out how much your home is worth.
Thinking about selling your home? Likely the first thing you want to know is, how much is my home worth? The short answer is: whatever a buyer is willing to pay for it. But the reality is, there are several factors that go into determining the true value of your home. Finding that "sweet spot" makes for a smoother process, from listing and negotiating offers, to navigating the inspection and appraisal.
Fair market value (FMV), often just called market value, is the price that a home would sell for in a free and open market. It assumes the buyer and seller are reasonably knowledgeable about the property, that they're working in their own best interest and not under duress to quickly close a deal, and that the property has been on the market for a reasonable amount of time.
What does this mean in practical terms? For starters, the property isn't distressed (i.e. foreclosure or short sale), and it isn't intentionally priced low to sell quickly or incite a bidding war. That's because the goal is to establish a fair and accurate valuation of the home based on what it's worth - not necessarily what buyers are willing to pay or banks are willing to accept.
That's an important point: what buyers are willing to pay. They may be willing to pay more to get into your neighborhood. Or, they may see nothing but dollar signs when they think of changing your decor.
In the first scenario, you may run into some trouble with the appraisal. In the latter? Hey, that's what negotiations are for, and ultimately you decide how much you're willing to bend.
This is why the fair market value of your home will not necessarily always be your sales price.
So how do you arrive at a number to start with?
Ask any reputable agent what they think of today's online home valuation calculators, and you'll likely hear how the sites' inaccuracies have caused plenty of frustration and disappointment for buyers and sellers alike.
While sites like Zillow, Redfin, Movoto, and others admittedly use some pretty advanced algorithms to calculate market value estimates, they simply cannot compare to the in-person evaluation of an experienced, local real estate agent or appraiser.
Quick experiment:
A charming bungalow located here in Medford, MA is currently for sale on Realtor.com for $699,000. To Realtor.com's credit, they do not provide estimates unless you register a property that you own. They simply pull from the MLS and provide a comprehensive and easy-to-use search platform.
Other sites do offer estimates.
Redfin says the estimated value of the same home is $729,310.
Movoto says $599,964
And everyone's favorite, Zillow, says $592,758.
Ouch!
From both the buyer's and seller's perspective, this is some incredibly conflicting and confusing information! Is it overpriced? Underpriced? Priced just right? With a difference of more than $130k between estimates, how could you possibly rely on those numbers?
You can't. Only an experienced real estate agent that is knowledgeable about your area can help you determine a true, fair market value.
You'll no doubt hear the terms "comp" or "pulling comps" being thrown around as you begin the process of listing your home. The terms come from the comparative market analysis (CMA) that a real estate professional will create to help you arrive at the fair market value, and ultimately the listing price of your home.
A CMA estimates a home's value based on recent sales of similar - or comparable - properties in the area. Comparable homes should be in the same neighborhood or within about a quarter mile from your home. They should be around the same size, with the same number of bedrooms and bathrooms, and ideally in similar condition (if your house is identical to your neighbor's except you recently did a total remodel and theirs hasn't been updated since it was built in 1990, your home will have a higher value).
Your real estate agent will use a mix of comparable properties from active listings, pending listings, recently sold listings, and even off-market/cancelled listings and expired listings. Those last two groups will usually have the highest median sales price, which is often precisely why they fall into the cancelled or expired category: they were priced too high to begin with and didn't sell.
After this extensive research, most agents can confidently present you with a fair market value and suggest a range for you to consider for your listing price. Many agents will even offer to do this report for free and email it to you in advance of meeting in person.
The problem with this is clear. They are going on your word as to the condition of your home.
This is tricky because design, decor and individual home characteristics are very subjective. One person's dream kitchen is a gut job for another. And while it's common for buyers' agents to encourage prospects to "look past the [color], [carpet], [counters]," that's easier said than done. Fortunately, the condition of a home is more cut and dry, and a real estate agent can give you an objective value based on the condition of your home.
So what does your agent really look at when factoring your home's condition and characteristics into the value?
Condition:
The condition of a home has more to do with how it has been maintained, and whether aging systems have been repaired or replaced.
Characteristics:
This is the subjective part. Fortunately, when you work with an experienced agent who has a pulse on the local market, he or she will be able to guide you in any aesthetic changes you should consider before listing.
A right-priced home will sell faster and have fewer hassles during the negotiation and appraisal process. While online calculators exist and you can do your own research, it's no substitute for the experience and expertise that a local real estate agent that specializes in your area can bring to the table.
Let Newzip Connect You To That Agent
Newzip matches sellers to top-performing agents that specialize in your area and in the type of property you're selling, from Cambridge, MA to Fort Lauderdale, FL and everywhere in between. To better understand the market in your area, download our FREE Zip Code Snapshot and view median sale price, average sale to list ratio, and more.
