We talk a lot about market value, but what is Market Value?
Simply put market value is the amount a potential buyer is willing to pay for your home in the current market.
So how do Real Estate Professionals determine what that amount is?
Well there are different methods of estimating value but let's focus on the Direct Comparison Approach method since this is the most popular in residential markets.
The Direct Comparison Approach involves comparing your home to similar homes which have recently sold and making adjustments for any differences. This takes, time, skill, knowledge, and careful judgement. The information is typically gathered from Brokerage files and The Multiple Listing Service.
The most important factor to consider when gathering information is selecting truly comparable properties, you don't want to compare a ranch style home to a two-storey, or a new home to an old home, or a 1 acre lot to a 100ft lot, or a home on the south end of town to yours which is in a completely different neighbourhood, or...... well you get my point.
Adjustments are made based on value, not on cost. The cost of the renovation and the value that it adds are two different things. An example would be a renovated kitchen that may have cost $25,000 but may only be valued at $20,000 or the opposite could occur, a garage that was cost $10,000 to construct could potentially add $12,000 worth of value. So you can see how cost and value differ, if you are planning any renovations, perhaps you are updating your home to get it ready to sell, my advice would be to check with a Real Estate Professional to determine how much value your planned renovations will incur.
Time is another important factor that needs to be considered, you need to know what the economic conditions and market trends were at the time of sale of the comparable property, since market conditions have a significant impact on market value. Furthermore the necessary adjustments will need to be made.
An estimate of value is just that, an estimate, therefore if you have more than one Real Estate Professional estimate the value of your home it's unlikely that they will come up with the exact same figure but it would likely fall in a relatively close range.
I hope you found value-pun intended, in my blog. If you have any questions about market value or real estate in general please contact me, Sarah Eden at 226-883-2336.