Whether it’s a car, garage sale items or you’re selling on websites such as Ebay, successfully selling “stuff” has one major requirement: you need to know how much it’s worth.
After all, price an item too high and it most likely won’t sell. Price it too low and you’ll lose money on the deal.
The same holds true for houses, but there is a lot more money involved and the stakes are far higher.
There are three common home valuation models, depending on the purpose for which the value needs to be ascertained. Let’s take a look at these and the differences between them.
Your home’s assessed value
Homeowners can’t get around paying property taxes and they’re based on your home’s assessed value. Your county or other municipality official, most commonly known as the “assessor,” will come up with the number for this home valuation.
He or she will use many of the same resources as a professional appraiser, from public records to recent sales. After deducting any exemptions available to you, the assessor multiplies the value by the tax assessment rate for your municipality to come up with the tax value for your home.
You’ll notice that the assessor’s home valuation is often quite different than your home’s actual market value. Again, this home valuation is for tax purposes only and does not express your home’s current market value.
The fair market value of a home
The fair market value of a piece of property is based on what a buyer is willing to pay and a seller will accept. It is reflected in the recent sales prices of similar homes, or “comps,” short for “comparable homes.”
Most home sellers rely on the skill and experience of their real estate agent to determine their home’s current fair market value. And, although they don’t call their determination an “appraisal,” real estate agents use many of the same home valuation techniques as appraisers.
They will base their determination on the following, when comparing your home to the comps:
- The size of the home
- Number of bedrooms and bathrooms
- Age of the home
- Condition of the home
- Location of the home
- Special features or improvements
Then, if the agent is familiar with your neighborhood, he or she will use any knowledge of recent home appraisals in the area to help narrow down a price for your home.
This is what a professional home valuation does for homeowners: it helps them determine a competitive price for their homes.
A home’s appraised value
The appraised value of a home is that which is determined by a professional home appraiser. Typically hired by a buyer’s lender, this is the value determination that can make or break a home sale.
The appraiser will visit the home, taking measurements and examining the overall condition of the property. Back at the office, he or she will locate three similar properties within a close radius to the subject property, and then make adjustments based on different methods (cost approach, income approach, or sales comparison approach).
They will then make a determination on whether the accepted sale price is supported by their valuation
Whether or not your agent’s home valuation matches that of the appraiser depends largely on current market conditions. In a recovering market, such that we saw after the recession ended, it may be challenging to pinpoint value.
When purchasing a home, it’s a smart move to look at a home’s property tax burden. But, for sellers, this type of home valuation means little. It’s the fair market value and the appraised value that are most important.
Have questions on the value of your home? Fee free to reach out to us.