As a seller, you can put a price on your home for sale, but the value of your home is ultimately determined by the person who buys your home. Some conditions would make a buyer pay over the market price for your home, they include location, the elevation of the home, or proximity to something important to them. The shortage of inventory can increase competition among buyers and can drive the value of your home higher.
But no matter the value, you must initially price your home properly so it will result in the highest sales price. If you price your home too high and it sits on the market for a while, it can sell at a lower than intended price. When a home sits on the market longer, it gives buyers the impression that there is something “wrong” with the home because it didn’t sell right away.
So, how do you determine the right price when you want to sell your home? First, realize that it has nothing to do with what you want to get out of it. Nor does it have anything to do with what you paid for the home. Even if you made a lot of improvements, these may not affect the value of the home.
There are three common sources in the business for you to use to determine market value on your home: a broker price opinion, an appraisal, and using an online automated value model like Zillow® or Trulia®.
An AVM, automated value models, use mathematics to estimate price by analyzing limited public record data. This process compares objective data such as square footage, age, and the number of bedrooms. It cannot adjust for subject data like appeal, construction quality, floorplan, or renovations. Zillow® Zestimates is the most common AVM but many others provide a similar service.
Appraisals are made by a licensed appraiser only. Most mortgage lenders require an appraisal as part of their underwriting process to verify that the home provides enough collateral to secure the mortgage in case the borrower defaults on the loan. FHA, VA, FNMA, Freddie Mac, and USDA as well as most private lenders require an appraisal, especially for high loan-to-value mortgages. In the case of lower risk, a lender 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 verifiable property information.
The third option, a Broker Price Opinion or BPO, is an opinion on the property made by a licensed real estate agent. This estimate is based on the experience of the agent with a particular type of property and market area. It can be more sensitive since the agent will not only use homes on the market but recently sold and expired properties.
All three of the methods mentioned above use recent comparable sales to arrive at a value but the real estate professional and the appraiser can make a series of adjustments for the differences in each of the comparable homes. The appraiser is highly trained in this technique, but the real estate professional will add credibility based on their experience in how the buying public might react to features in the home whether positive or negative.
Determining the current condition of a property is crucial for many reasons. There are certain price ranges where the buyer may only have enough for a down payment and closing costs and no money left over for improvements. This means the buyer would have to live in the house in its current condition until they could afford the updates.
This may not deter investors, there are times when they will make an initial investment in a home after they purchase it if it will increase the potential profit to be made in the end.
Using an AVM as a tool, a homeowner, potential buyer, mortgage officer, appraiser or real estate professional can get a quick look at the price in the area of the home, but with so many variances it would be ill-advised to use it as the only determining factor for home price valuation.
Having confidence that a value is accurate comes from experience and understanding of the subject property and the marketplace around it. Anyone can do an AVM, but an experienced professional is more far more likely to be able to assess the variable more accurately. If you are curious about what your home is worth, call me at (703) 303-4010 or email me at Thierry@ThierryRoche.com for a Broker Price Opinion.
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