Home valuation and marketability

When trying to determine a home’s value, buyers and sellers often possess differing points of view. Emotions may unknowingly play an influential role, resulting in differing opinions and a disparity between a home’s presumed value and its actual value. Buyers and sellers are each influenced differently. It is therefore understandable the assumed value of a home, by either party, may unintentionally be subjective, resulting in an over-valuation or under-valuation of the property. However, there are ways to ensure pricing accurately reflects market conditions. A proper valuation assessment in advance of listing or purchasing a home can prove to be of great benefit and an effective means of bridging the perceived gap in value.

A home’s true market value is the most probable price the property should bring in a fair sale. However, there are distinct differences between market value and market price and although a synergy between the two exists, they’re not always interchangeable. The determined value of a home is not necessarily the price for which it will sell. The final purchase amount may be higher or lower than the home’s market value.

As third-parties to the transaction, real estate agents and licensed real estate appraisers do not share the same emotional ties as prospective buyers and sellers. These professionals are therefore afforded the ability to bring a level of objectivity to the home valuation process. Assessments performed by professionals well versed in real estate market trends will provide a foundation for establishing appropriate price points. Whether aggressive or conservative, an educated decision can then be made to either buy or sell a home based on determinable price ranges aligning with market demands.

In the real estate industry, the principles of supply and demand are ever changing with limited demand and greater supply favoring buyers and greater demand and limited supply favoring sellers. In response, the value of a home is influenced greatly by recent market activities in the surrounding area, taking into account the sales of other homes possessing similar characteristics and attributes. But home values are also influenced by a variety of other factors which include, but aren’t necessarily limited to, demand, utility, scarcity and transferability. Each of these also play an ever-present role in determining what a home is worth.

The valuation of a home typically begins with a real estate agent performing a competitive market analysis. Commonly known as a CMA, a competitive market analysis is an estimation of a home’s value based on current market conditions. A CMA considers current listings, recently closed transactions and properties that did not sell. CMA’s are invaluable, helping buyers prepare appropriate offers and sellers arrive at a reasonable asking prices.

However, CMA’s are not appraisals of value as would otherwise be offered by a licensed real estate appraiser. Where a CMA is performed in effort to estimate the marketable value of a home, an appraisal is a professional opinion of financial worth as provided by a licensed appraiser.

Real estate appraisers examine many of the same data sets found within CMA’s when they prepare an appraisal report, but there are differences between the two valuation tools. Beyond the subject property being appraised, an appraiser’s report also focuses on the methodical collection of data as it relates to the neighborhood, region, political climate and populace of the area surrounding the subject property. The physical appraisal of a home by a licensed appraiser is always advisable and often required of buyers who are seeking to obtain financing for the purchase of a home.

There are a multitude of home valuation tools available online, but both buyers and sellers should be aware these tools have limitations in their ability to perform a thorough analysis of a specific home’s value. Online resources can be informative, but both CMA’s and appraisals delve deeper, accounting for current market trends and taking into consideration a home’s physical condition and upgrades. When performed correctly, a CMA and an appraisal will usually express similar valuations, which may differ from what has been reported online.

Market conditions are always strong drivers of a property’s value but there are other ways sellers can positively influence what their home is worth. Prior to listing a home for sale, sellers should consider decluttering, painting and making necessary repairs. Minor changes often have a profound impact on a home’s value. There are also times where upgrading and remodeling may also prove beneficial; however, sellers should be careful not to overspend. Eventually improvements made to a home no longer add value. Just because a $20,000 investment has been made, does not necessarily translate to a $20,000 increase in value.

Both buyers and sellers alike should be open to discussing home values with a real estate professional before purchasing or listing a home. Home values can be subjective and it is important to seek the counsel of an unbiased third-party professional who is knowledgeable about the real estate market. Whether buying or selling, marketable homes are oftentimes a direct reflection of a qualified valuation assessment.

Sean and Aimee McDonald, realtors with RE/MAX North Lake Tahoe, can be reached at 775-250-8335 or mcdonaldrealestateteam@gmail.com.