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How to Value Your Property.
If you’re thinking of selling a home, immediately the first thing you will think of is how much you want to sell it for. To determine this you think about how much you bought it for, how much money and repairs you put into the property, etc. Thirty years ago if you were considering selling your house and you wanted to know how much to sell it for you would have to go ask a realtor, today most people would probably say they check the website www.zillow.com to find out how much their home is worth. Zillow.com(Zillow) is the most popular online real estate information site, with 73 million unique visitors in per month. Zillow serves as a public database of active listings of properties for sale. It provides information on houses that are not on the market. You can enter your address and pull up key information about your home. Zillow also offers sellers with a “Zestimate”. This is a range of what Zillow’s analysis says your home will sell for. Sellers and buyers routinely quote Zestimate’s to realty agents — and to one another — as gauges of market value. If a house for sale has a Zestimate of $350,000, a buyer might challenge the sellers’ list price of $425,000. Or a seller might demand to know from potential listing brokers why they say a property should sell for just $595,000 when Zillow has it at $685,000.
We are living in an information age. I completely understand the consumer wanting and deserving to have access to information about their homes. It’s just unfortunate that in many cases the information provided is inaccurate. Zillow CEO Spencer Rascoff himself said of his Zestimate’s, they’re “a good starting point”. Nationwide, Zestimate’s have a “median error rate” of about 8%. I can understand maybe a 1%-3% error rate but 8% in my opinion is unacceptable. On a $500,000 house, that would be a $40,000 disparity. Are you ok with leaving that money on the table? I’m not ok with that. Further analysis has shown that localized median error rates on Zestimate’s sometimes far exceed the national median, which raises the odds that sellers and buyers will have conflicts over pricing.
In New York County — Manhattan — the median valuation error rate is 19.9%. In Brooklyn, it’s 12.9%. In Somerset County, Md., the rate is an astounding 42%. In some rural counties in California, error rates range as high as 26%.
The purpose of this article however is not to bash Zillow. In the name of valuation and market sale projection we must look to find inefficiencies in the market. Buyers and sellers coming to the market with unrealistic expectations based on incorrect data is not good for anyone.
When we talk about the value of an individual home the clarity of the picture can sometimes be convoluted. In real estate, in a broad sense the definition of value is how much someone will pay today for future benefits arising from owning real property. For a property to have value in the market place it must have four characteristics, these can be remembered by the acronym dust. Demand, Utility, Scarcity, and Transferability. If you are looking at the value of your real estate ask yourself does my property have DUST? There are also different types of values, these include insurance value and assessed value just to name a few. Most people are familiar with an appraiser and their role. Typically they look to find the market value of a property. As an individual looking to get the most out of your home you will be looking to compete against all of the other homes available on the market and so an appraiser will be comparing your homes against these homes along with other things.
The key to home valuation is to look at the numbers, as the cliché saying goes, “numbers don’t lie”. Maybe in your world you can pull a number out of the air, say that’s what your home is worth and someone will pay that price with no research or analysis. In my world, individuals, families and especially investors will be looking at the numbers and you should as well.
An appraiser will use three basic approaches. The first is the sales comparison approach. This is also known as the market data approach. An estimate value is obtained by comparing the subject property with the recently sold comps. This approach. Is the most reliable and is used mostly for single-family properties. The second is the cost approach. The cost approach is based on a principle of substitution. This states that the maximum value of a property tends to be set by the cost to acquire an equally desirable property. Determining these costs is an in depth process and again is not something that can easily be done by a layperson. The third approach is the income capitalization approach. This is typically used for rental units of 5+.
The cost for an appraisal is somewhere around five hundred dollars. If you don’t feel like shelling out the cash just to get a higher level valuation of your property don’t fret, a realtor can provide you with the data you need in the form of a CMA or Comparative Market Analysis. This is essentially the sales approach method used by appraisers. A realtor will use your home as the subject property and look at homes that are of like kind to your property in a quarter of a mile radius. They will look at things such as bedrooms, bathrooms, exterior, sqft, year built etc. They will look at properties sold within the previous thirty-forty five days and they will look at if your property needs any repairs. After analyzing all of this information the realtor will provide you with an estimated range of what your property will sell for in, as is condition.
At DLA Home Solutions we have very strong relationships with some of the most accredited and well connected brokers in the industry. We look to influence the marketplace in a positive way and our philosophy is that the best way to do that is by presenting all parties involved with the most accurate and up to date data to enable informed decision making. If we can be nothing more than a resource to you that provides you with pertinent real estate data then that is ok with us. Whether DLA Home Solutions buys your home or you choose to list your home on the market determining an accurate present market value of your home along with a future estimated market sale cost is the first step in the process. I hope this article was beneficial in helping you get a brief overview of what it takes to begin to analyze your property correctly. To get a free realtor CMA or for a Free and Fair Cash quote for your home please give us a call today at 888-349-7262 or email us at firstname.lastname@example.org.