Assessing Market Value of a Home
Have you ever wondered how much your house is worth? Do you want to know how a real estate professional assesses the value of your home? Read the following for a quick, simple explanation of real estate agents figure out your home's worth!
What is Market Value?
In the real estate market, there are many prices to represent the value of a home. There is the tax appraisal value, which is used for the purpose of property taxes. There is the bank appraisal value, which is used by lenders to assure the home they are loaning to a buyer is worth what the buyer is paying. Then, there is the market value of a home, which is the value of a home that will be paid on the open market by a qualified buyer. There is no concrete formula to figure out the market value of a home, so it is important you consult a professional real estate agent who knows the local area's market and has the tools to price your home right to make the most money and sell your home in the quickest amount of time.
Comparative Market Analysis
So how does a real estate agent calculate market value? They perform a Comparative Market Analysis, which takes into account the prices of homes sold that are comparable to the home you are trying to valuate. A comparable home is one that has as many similar features to the subject property, was sold within the last 6-12 months in the same town (or even neighborhood, if possible). Obviously, it would be ideal for comparable homes to be carbon copies of the subject property, but that is simply not the case in most instances. Therefore, we try to match certain features as closely as possible to the subject property. But, what are the most important features?
The most important feature we match between comparable properties and the subject property is the style of the home. For instance, if the subject property is a ranch, we will find ranches that have sold in that town within the last 6-12 months. If we cannot find enough comparable homes in a given style, then we look for similar styles. Ranches, raised ranches, and split levels are considered similar, while capes and colonials are considered similar.
After style, the most important feature is the number of bedrooms. Bedrooms are important because the number of bedrooms typically dictates the number of people that can occupy a home. To be considered a bedroom, the room must have a closet. Bedrooms are very important for comparable properties because they are worth a great deal of value and therefore impact market value greatly.
Bathrooms are another important feature we try to match because they add lots of value to a home. Bathrooms are classified as either full bathrooms if they have a toilet and tub with shower or a half bathroom that has only a toilet. If a bathroom has a toilet and stand-up shower with no tub, it is technically considered a three-quarter bathroom, but is considered a full bathroom for market value purposes.
4. Living Area
A final important feature real estate agents consider is the square footage of the living area of the subject area. To be considered as living area, the floor space must be heated, have finished floors, walls, and ceilings of acceptable height, and must be accessible by a door or entryway. Living area can vary considerably between homes, so we try to be within a few hundred square feet with out comparable properties and the subject property.
5. Other Features
Whenever we perform a comparative market analysis, we match style, bedrooms, bathrooms, and living area as closely as possible between comparable properties and the subject property. Beyond these features, there are some other items that can add value to a home, but are not a part of every home. Some of these items include garages, central air conditioning, and swimming pools.
For all 5 of these features, when we do not have perfect matches, we make financial adjustments. For instance, if a comparable property has 2 full bathrooms, but out subject property has 3 full bathrooms, we will ADD value to our market valuation. Or, if a comparable property has 3 bedrooms and the subject property has 2 bedrooms, we would SUBTRACT value from our market valuation.
Once we have our comparable properties and have made our financial adjustments, we take the average sale price of the comparable sale prices to come up with an initial market value.
Even though we have an initial market value, the job is not done. Finally, we must consider the overall quality and age of the home. A home that is 80 years old, has peeling paint, and dirty carpeting is considerably less valuable on the open market than a 10 year old home that has new paint and hardwood floors. We also look more closely at the kitchens and bathrooms. If the kitchen has granite counter tops and custom cabinetry then it is more valuable than a kitchen with laminate counter tops and stock cabinetry. One last note I would like to make is that if there is a comparable property that is nearly identical to the subject property, I will give more weight to its sale price than the other properties. When I present my market value, I will give a range of about $20k dollars to my sellers and will discuss with them how they would like to price their home fit their needs.
Tim Walsh, REALTOR® is a licensed (#9557151) Massachusetts real estate agent with Century 21 The Real Estate Group. Tim primarily works in Central Massachusetts including the following towns: Milford, Hopedale, Mendon, Upton, Medway, Bellingham, Hopkinton, Holliston, Franklin, Uxbridge, Northbridge, and Blackstone. If you have any questions or need help buying, selling, or investing in real estate, call (508-494-9634) or email (firstname.lastname@example.org) Tim today!