What is your home worth? The best answer: whatever a typical buyer is willing to pay for it in a fair and open market. But what is it worth hypothetically speaking if you don’t plan to put it on the market anytime soon—or ever?
It depends on who is asking the question and why they are asking. The most common sources of home valuation are: real estate agents, appraisers and the lenders who typically hire them, and online sources like Zillow.
Real estate agents who want to list your home may suggest a value based on their extensive, ongoing knowledge of the local market and what they see in your home—the same sources an appraiser uses, without measurements and calculations. They tend to rely on “gut” feeling, quite a formidable source in a seasoned agent. A good realtor might come up with a more accurate number than an appraiser, especially in a changing market. That’s why lenders and other interested parties sometimes get a casual written valuation, a “broker price opinion” or BPO.
Appraisals are required by lending institutions to establish that the loan amount for a sale or refinance is worth their risk, or has an acceptable “loan-to-value” ratio. A full appraisal is based on an inspection and measurement of the home including its interior and exterior amenities and upgrades as well as site, location, and environmental factors. This in-depth picture of the property is then compared point-by-point to similar properties, or “comps” in a market analysis. An appraisal is considered to be a solid, conservative indicator of the property’s value as of a particular date.
In this post-recession market, heavily influenced by bank owned foreclosures and short sales, appraisers and realtors look at both “distress” sales and “retail” or conventional sales to determine value. The lending industry has impacted the market in an interesting way by modifying some but not all distressed loans and by dealing directly with parties to a short sale transaction to determine sale price, creating a category of sales not determined by fair market forces. In most areas, value probably falls somewhere in between.
Zillow and other online valuation services are snazzy and fun and instantaneous. But most agents consider Zillow too broad-spectrum to provide any real guidance on value. Based on computer algorithms, Zillow values are great for a quick overview, but they do not account for the wild fluctuations in value often seen in one neighborhood or even one block—caused by luxury homes or other exceptional properties alongside foreclosures, short sales, and conventional sales.
It’s only human nature to place your own property’s value at the high end of a cluster of Zillow sales. It’s also human nature to consider your lender’s appraisal far too conservative for all the work you’ve put into your house. Often, a home’s true value lies somewhere in the middle… or, short sales aside, at exactly what the highest bidder in an open market pays!
When you're ready for your dream home in Arizona contact Doreen Drew at 623 879-3277 or email her at firstname.lastname@example.org. Also visit her website.