With Helen and Colin thinking of selling their third home, Helen expressed discontent at the way agents have evaluated their homes. Here’s what she said:
“Every time we’ve sold a home we’ve used a couple of different real estate agents. Each has shown us three or four sales they consider similar to our home. They then give us a suggested sale or list price based on some unexplained and mysterious mental weighting or by merely calculating the average of the sales. How can such methods consider special differences and features our home offers?”
There are basically two solutions to Helen’s doubts:
- Hire and pay for a certified appraiser or
- Use a REALTOR® who employs accepted appraisal practices to evaluate their home for best market price.
In truth, sometimes recent sales that compare to your home are similar enough in age, condition, location and features that taking an average of the sales can fairly express the home’s market value.
As a first step it’s nice to find comparable sales that sold within the last two to three months as they typically don’t reflect any economic changes. This however isn’t always the case, so an adjustment in value because of time of sale has to be considered. For example, if the comparable sold six months ago, then the REALTOR® has to determine if prices have risen or fallen and adjust the sale price of the comparable to account for this.
Other factors can have an impact on value as well.
- A review of market conditions is a good start. Is it a seller’s market, buyer’s market or a balanced market? This can be determined through a look at the absorption rate in your area, that’s the number of months of inventory or active listings based on the average number of sales per month.
- Plus and minus value adjustments also need to be considered for various differences such as location and any number of physical features that include landscaping and curb appeal, lot and house size, age and condition, style, quality of construction and extra features.
Let’s look at one example. Let’s call the sold price of a comparable home the starting price, and the home being evaluated the subject. If the comparable home has a feature that is better than the subject, say a double garage vs. a single for the subject; a dollar value is subtracted from the starting price of the comparable to reflect this difference. If the comparable has less square footage than the subject, then a dollar value is added to the starting price. The evaluator needs to have a grasp of the various dollar adjustments that can impact a home’s value.
The adjusted prices reflect the subject’s value range, and comparables with the least adjustments are the most reliable. This is called the Sales Comparison Approach to Value and it’s very trustworthy in the right hands.