Offer Buyers Assessing Value – Comparison Shopping

Methods of Assessment

Out of thin air, gut feel

This is frankly by far the most common method that people use to assess their home value at first, They have heard whisperings of home sale prices in the past. Their friends or family have recently sold, and they know prices in their community are a bit higher or lower. The place down the block was listed at $X and the signs gone, so it is worth $X. On paper, all of these sound reasonable, but unfortunately, they throw things off from the beginning and people tend to LOOK FOR FACTS that will validate these things and disregard other facts that contradict it. Getting the Fair market value range right off the bat is critically important to netting the highest price. So, don’t disregard the facts to validate a biased opinion.

Price paid, plus money invested plus increase

When we bought the place I am in now, we gutted the entire home, removed walls and redid it basically from scratch. We paid $400k put approximately $200k into it and I did much of the work, that was 5 years ago. Bing bang boom this place is worth $700k. First off, the returns on the work in renovations and upkeep typically don’t pay off 100% not to mention 150%. If we did half the place for $100k we would not net half the same profit then as well. There are way too many other variables that come into play that affect the fair market value. And don’t forget If you replace a kitchen with a relative value of $40k with a shiny new kitchen that costs $100k, That puts you ahead $60, not $100k. (100-40=60.

Well-intentioned but bad advice of relatives or friends

This truly is one of the most frustrating for everybody. A little knowledge is a dangerous thing. Your family wants nothing but the best for you. They are smart educated and experienced people who own a home have bought 2 or 3 in their lifetime. The problem is they don’t know what it is currently like in today's market and likely in the micro of what you are looking at. They can't possibly compare looking at 1 or 2 homes, and say what the market is like. Home shopping is comparison shopping. Values relate to everything else. And the only way to properly assess that is to look in an unbiased manner at recent sales, in close proximity, sharing similar traits and size and reasonable adjustments made based on market appeal. Period. Agents will spend a few hours pulling up “comps” and assessing them to arrive at a reasonable value. That doesn't mean they are always right, but the stats of 68-76% of sellers overvaluing their homes vs appraisers, means realtors tend to be right more often than the seller. 

MLS “Active” properties

This is the other part that creates issues, If 68-76% of sellers are wrong in their values, and listing agents don’t want to offend the seller and risk not getting the listing. You see the “Active” properties online are not necessarily “Active” they may just be “listed” You see the homes online that typically sell are the ones that are on the higher value side of the market, in other words, the biggest and nicest available for the least money which is the opposite of what we want to see when we are trying to assess our home value. Which typically sounds something like this: “Our house is roughly the same size as that and is even nicer so it should be worth roughly X more” In theory that sounds right, but it doesn’t take into account that that property is overpriced, will reduce twice and still not sell after nearly a year on the market. And don’t forget roughly ½ the homes don’t sell. It's not that you cant use these as your comps (it's just that these are your COMPetitors, NOT your COMarables.) Assessing your home value with the proper information, apples to apples mean successfully sold to what yours will sell for. I can not stress this enough, and I know it quite often is not what you want to hear, but if you're going to actually sell for the most money then it is what you HAVE to hear, in order to set a proper strategy for the rest of this.

None of these are great, accurate and may end up costing you a good deal of equity.