March 7th, 2016 By James Soletti in Blog.
The obvious answer to the question is the market value of your home is how much it ends up selling for in an open real estate market. But how can you estimate the market value of your home if you are considering putting it on the market to sell? This is a question many homeowners have asked us over the years. There are several sources and methods of determining market value: you could use an online web site, the County Appraisal District web site, a Realtor or an Appraiser. These four sources are different and will almost always produce a different value for your home. So which one is best for you?
There are several web sites that offer market value estimations. Two of the most popular web sites that homeowners visit to find out the value of their home are Zillow and Trulia. Did you know that some of Zillow’s estimates can be off by thousands of dollars? If you think about it for a moment, how can a web site that is not located in your local area and has never been inside your home determine the market value of your home? It’s impossible for a homes market value to be accurate since these online web sites have no clue what is currently happening in your local real estate market or what the condition your home is in. Automated valuation models, also known as AVM’s, area service that offers to provide a home valuation using mathematical modeling combined with a database. AVM results can be produced in a matter of seconds. They use public record data and computer logic to calculate an estimated sale price of a property. It sounds like AVM’s would be a great way to determine the market value of a home but the reality is that they can be a terrible method to determine how much a home is worth. Similar to the price per square foot method, AVM’s don’t take into account property features, upgrades, and amenities. Another drawback of using AVM’s to determine the market value of a home is the fact that you do not know when their database was updated. A lot can change in a few days, weeks or months that could affect your home value.
Texas Appraisal Districts establish their values as of the first day of each year for taxing purposes for that year. Appraisal Districts use mass appraisal methods that analyze properties grouped by similar market influences and characteristics rather than by performing individual appraisals on each parcel every year. This method of appraisal provides more uniformity in taxation for taxpayers with benefit the taxpayers knowing that they are being treated the same as other property owners but this is not a great source for current market value data. In fact, in Texas when a property is sold the sales price is not required to be reported to the appraisal district. They rely on voluntary reporting for their data base. So their data base is probably the most out of date of the four sources listed above.
A comparative market analysis, frequently referred to as a CMA, is something that a Realtor can prepare for you after a visit to your home. A CMA is a detailed analysis performed by a Realtor that analyzes recently sold homes within the past six month period and homes currently on the market in your area. Some of the most important things to look for in the comparable properties used in the CMA is, are they in the same area or neighborhood as your home, were they build around the same time, do they have a similar size or square footage, do they have the same number of bedrooms and bath rooms and how do the improvement or amenities compare? A Realtor will take into consideration your needs (i.e. how quickly are you wanting to sell, are there any special circumstances, etc.), how much are current interest rates, what is the condition of your home, how much inventory is currently on the market and how active has the real estate market been in your area?
Another popular and accurate method to determine the market value of a home is to purchase an appraisal on your home. An appraisal is a written estimate of a properties value that is completed by an appraiser. The cost of an appraisal typically ranges between $250 – $500 but is a great way to get an unbiased opinion of a homes market value. There are a couple of different appraisal methods that an appraiser can use to determine a homes value. Below are brief overviews of two different approaches used by an appraiser:
The cost approach is an estimate of what it would cost to replace or reproduce the improvements in a home that will deduct issues such as deterioration of a property. The cost to replace or reproduce a home is added to the value of the land to complete the appraised value.
The comparison approach is the same as a comparative market analysis completed by a real estate professional. An appraiser will look at properties that have similar size, quality and location that have been recently sold. Variations between properties are factored by either adding or subtracting value to the value.
As you can see, there are many different ways to determine the market value of a home. Some can be poor choices for the reasons listed above. Remember both a CMA and an appraisal take time to complete properly and a CMA is free. If you agree information is power you will want to use one of the sources listed in this article before you list your home for sale.