You were featured in an episode of "My House is Worth What?" On HGTV. What were the major factors you considered when deciding on the value of the home?
To determine the true market value we look at 3 different reports from the MLS. Where we are different from most Realtors, is we don’t find 3 comparable homes that are for sale, and 3 that sold. When you use that appraiser type method you are picking the 3 homes YOU feel is most like. Appraisers have a contract price in front of them when they do an appraisal. They are hired to help the bank determine if they should loan this amount to the buyer. When an appraiser finds 3 comparable homes, that average the sale price, they are letting the bank know that 3 other homes did average around this price. Where we get in trouble is if everyone is always using the 3 highest sales. Anyone can justify a price…but what are the true buying patterns of the buyers in the market place. The appraiser method isn't wrong, it just does not take into consideration ALL the supply and ALL the demand. To prove the point, if you use 10 different appraisers and give them 10 slightly different sale prices on a property, it would be rare to see all 10 use the same three comparables. They are using their opinion. The best opinion to determine the price of a property is a true buyer (not being sold by an overly aggressive sales person) that looked at 10 similar properties and see what they say the fair value is compared to all the homes they saw.
Here is another thought about why prices are different. Some agents (and even appraisers) might include a foreclosure in the neighborhood into their evaluation. Here is where that might not be a valid comp. If a homeowner is not in a distressed situation think of this scenario: If a neighborhood had 10 regular, non-distressed closed sales and 2 foreclosures sold, do you think the values are dropping in that neighborhood? It appears that a more significant number of regular sales are happening than foreclosures. If you are getting the value of your property from someone that uses the lowest price and the highest price and calculates an average price…that average is skewed and is actually lower than the true average. Can you see how IF the subject property is a regular sale and there are significantly more regular sales..why wouldn't you only use the average of the regular sales (if there were only 1 or 2 foreclosures)? The typical buyers out there in the market place right now, do not see values dropping in that neighborhood because of a couple foreclosures. The sale prices show the actual buying consumers are still paying regular price. The flip side is, if there are 10 foreclosures and 2 regular, non-distressed sales, then what buyer in the marketplace is going to want to buy in a depressed neighborhood when they are comparing that neighborhood to 10 other neighborhoods that may have more “regular” sales.
It is truly all about Supply & Demand! Remember that class in high school everyone hated…ECON 101? Guess what, that is what real estate is. If there are 10 homes on the market and a homeowner wants (or needs to be) priced at the #10 spot on that list that would make them the MOST expensive home on the market. In a FLAT or Depreciating market, that overpriced listing will make #1-#5 look like a really great deal! That is when I would advise a homeowner to not sink any more money into the property. It is already going to sell for less than they want, so why lose more money? Each property and each day brings a new set of circumstances therefore you truly want someone knowledgeable in this aspect of valuing property to help you determine what the market will bear.
The best value for spending money on a home is adding square footage or adding a bedroom. Believe it, or not, adding a bathroom is truly not going to add more to your sale price (UNLESS you are going from one bath to get 2 baths in your property). Think about it…do you really think a buyer will pay $5,000 more for a home that has 2 ½ baths vs 3 baths? When they compare the two…they may make the offer on the home with 3 baths, but they will offer the price they would have paid for the 2 ½ bath home.
See more about our HGTV episode at www.kornteam.com
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