Who Decides Value?
The seller can put a price on the home but the value is ultimately, determined by the buyer. Individually, a buyer could pay over market value because they love the location, or the elevation of the home or the proximity to something that is important to them. The shortage of available homes resulting in increased competition among buyers could drive the value higher.
Most experts agree initially pricing it properly will generally result in the highest sales price. If a home starts out too high, it could actually sell for a lower price after it has been on the market for a while. It gives the impression that there must be something “wrong” with the house because it didn’t sell immediately.
So, how does a seller determine what price to put on the home? It has nothing to do with what the seller needs to get out of it. Nor does the price the seller paid for it make any difference now. Even if the seller made considerable improvements, they may not affect the value of the home.
There are three common sources for a seller to determine market value: an appraisal, a broker price opinion or an automated value model found online.
AVM, automated value models, are mathematical estimates that analyze limited public record data to determine a value. While this process can easily compare square footage, age, number of bedrooms as objective data, it is much more challenging to make adjustments for subjective data like appeal, quality of construction, floorplan and updating. Zillow Zestimates are the most common AVMs but there are many others providing similar services. It is important to note that many of these values are just gimmicks to get website traction and are not all that accurate.
Appraisals can only be made by a licensed appraiser. Most mortgages require an appraisal as part of the underwriting process to verify that there is ample collateral to secure the mortgage in case of default by the borrower. FHA, VA, FNMA, Freddie Mac and USDA as well as most private lenders require an appraisal especially for high loan-to-value mortgages. In some situations where the risk is lower, some lenders may use an AVM.
An appraisal requires the appraiser to visit the property, perform a visual inspection, analyze the property considering three approaches to value and accurately report the property information that is verifiable.
Broker Price Opinion, BPO, as the name indicates, is a price opinion on a property made by a licensed real estate agent. The determination of whether the estimate accurately reflects the market will depend on the experience of the agent with that type of property and market area. It is possible that a BPO could be more sensitive to the actual market because it will consider homes currently for sale and recently expired properties as well as comparable sales.
While all three methods, used recent, comparable sales to arrive at a value, the appraiser and the real estate professional can make a series of adjustments for the differences in the comparables. While the appraiser is highly trained in this technique, the real estate professional also adds credibility to this process based on their experience in how the buying public might react to specific features and the home in general including positive and negative influences.
Current condition of the property is very important for a number of reasons. In some price ranges, a buyer may only have the necessary down payment and closing costs but is not able to make improvements like paint, floor coverings, appliances or other major items. In this situation, a buyer would have to live with the house in its current condition until they could afford to make wanted improvements.
Investors may not be deterred by making an additional investment in the home after purchasing it but will probably be motivated to do so only if it will increase the potential profit to be made.
An AVM can be a tool that a homeowner, prospective buyer, mortgage officer, appraiser or real estate agent can use to get a quick idea of price but there are inherent limitations that can only be considered by personal examination balanced with experience in the market place.
Experience and understanding of the subject property and the marketplace are critical to having confidence that a value is accurate. Any person could go through the same steps to arrive at a value but an experienced, well-trained professional is far more likely to assess all of the variables more accurately. If you are curious what your home is worth, call us at (503) 851-1645 or email brianandnina@paramountoregon.
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Another Victim. Stop Pricing your Home too High! It is Costing You!
Again, another client suffers from denial and the result is an extra $50,000 out of their pocket. I can’t tell you how many times this happens. Our largest challenge today seems to be educating sellers where the current market value of their home is. A typical listing appointment for us goes like this: We visit the seller’s home to review the location, condition and functionality, and amenities of their home. We spend time analyzing the market to find the REAL MARKET VALUE of their home. After presenting the facts to them, you see a shade of pale come over their face. “No way their home could only be worth that much”, they say. “We want to price it a little high to see if we get any bites. Don’t you want us to get the most out of our house?”
Of course we want our clients to get the most out of their house! That is why we give them the right information at the beginning so they can make an informed decision. Unfortunately often times, they don’t take our advice.
After months and months on the market the sellers usually end up chasing the market as it continues to decline. The most recent experience we had just closed at $50,000 under what they could have sold it for over a year and a half ago when they started the sale process. That denial got the best of them when they decided to price their home at $360,000 instead of the $310,000 that we suggested. They couldn’t stop thinking that their home was much better than the comparable comps around their Creekside neighborhood on Poppy Hills. After 19 months of frustration, they finally cut their losses at $260,000. That is a hard pill to swallow; losing over $50,000! However, that is what commonly happens to sellers who do not price their homes effectively.
Zillow had just released some studies that showed that homeowners who bought their home after 2007 are overpricing their homes 14.1% on average. Homeowners who bought prior to 2007 are overpricing their homes by 10.5% on average. Depending on the price point of the home itself; that can significantly price a seller out of the market! Buyers are finding great deals and those great deals are here to stay. The idea of us bouncing back to healthy appreciation anytime soon is a fallacy. This market is here to stay for quite a while; and by that, I mean quite a few years.
If you are planning on selling, don’t price your home too high! It will cost you!
For a Free Professional Market Analaysis call 503-385-1518 or visit http://www.old.paramountoregon.com
The Market is not the Problem- Pricing your home to Sell.
Many sellers get frustrated because their homes are not selling in this market. It is completely understandable when they get showing after showing; people that they don’t even know trampling through their home compromising the security of their belongings, and quite honestly the security of their family.
When we advise sellers in pricing their home, we make sure to help them understand that this is the best buyers market that we have seen; possibly in history! There is a ton of competition and the buyers are few.
EVERY buyer is looking for a deal in today’s market. They are concerned with overpaying for a house in a market that continues to decline. Most of our decline has already happened, but we will continue to slide this year. It is important for a seller to consult their Real Estate professional and determine where their market is heading.
Sellers are not dealing with a market problem; they are dealing with a pricing problem. Homes are still selling. It is not like the 1930s or 1980s when hardly anything was selling unless it was on a seller contract. In a declining market it is imperative to price your home better than the competition. In addition to that, you must do everything to make your home physically set apart from the competition.
The first 6 weeks of a listing is the sweet spot where most buyers are going to see your home. Anything after 6 weeks results in a stale listing and buyers start to discount the desirability of that listing.
If a seller wants to have any chance of selling in this market, they must price their home correctly. Pricing a little high will only result in the home not selling, or if the seller is lucky enough to sell it, they will sell it for less than they could have, and much later than they could have if they only priced it right from the start. No one likes to lose money, but that is exactly what sellers are doing by pricing their home above the competition in a declining market.
April Jobs Report tied to Strategic Defaults?
Jobs continued to gain in the month of April according to the Bureau of Labor & Statistics. 290,000 non farm jobs were created with 66,000 of them for the government as temporary jobs for the census continue to gain momentum. Have you had your friendly census worker visit you yet?
Over the last 2.5 years this Great Recession has contributed to approximately 8 Million jobs lost. Last months jobs report is encouraging, but I am not expecting numbers like that to follow month after month. And even if it did it would take about 3 years to get all of those jobs back that we lost. I hate to be a pessimist here. I want this our economy to thrive again and thrive now! I hope I am wrong, but I just don’t see how we can continue to spend the money that we don’t have and sustain any kind of momentum that we are seeing. The bailout of Greece is a prime example of that. The U. S. holds 17% responsibility in the International Monetary Fund and they just decided to bail out Greece for a whopping 1 Trillion Dollars! Greece is a perfect example of entitlement programs coming to a head. The working class can not afford to pay for all of these programs! More taxes means higher costs for good and services or less jobs. Period.
A lot of this “growth” that we are seeing is believed to be due to the seasonal time of year and the notion that many people are out spending more money instead of paying for their mortgage every month. Many of these are people who have jobs and have the money to pay for their bills, but they are strategically missing payments in order to have a little more fun this year. People are frustrated that their equity is gone so they are not seeing the value in making their mortgage payments. This is known as Strategic Defaulting. They miss a couple of months, which can mount out to a chunk of change, every month or so until the bank comes knocking. The borrower then makes a payment to appease their lender and the cycle continues over and over again. This obviously brings up a moral dilemma. What would you do? Studies show that once the value of a person’s home decreases to 75% of their balance owed, that person considers a strategic default. The more popular this idea becomes the more people will consider it. This won’t help out the recovery of our economy, but it is the sign of the times.