The most frequently asked question I get after “So, how’s the market?” is “How much is my house worth?” Unfortunately, as much as we would all like to think there is some intrinsic value as to what something is worth, it just isn’t true – especially in real estate.
Following are answers to a few questions that will help you determine the value of your house.
Q: How do I know how much my house is worth?
A: It is worth what someone is willing to pay for it. I know that is a trite answer, but it really is true. A better question is: “What is the fair-market value of my house?” This gets at the: “What will the marketplace (read: buyers) be willing to pay for my house?” question.
Q: What is “market value”?
A: From Econ 101, we learn that the more desirable (higher demand) something is, typically the more people are willing to pay for it (increasing prices). When your home is exposed to all homebuyers in your marketplace, the buyers (the market) are the ones who will come back to you with offers, which becomes the market value – in short, the value based on what the market says.
Q: How can I know what my market value is if I don’t want to sell right now?
A: It’s hard to know for sure. You may think it is worth one number based on how much you love it, but the buyers may think it is worth more or less. (I call it the “But wait, my house is built with golden nails syndrome.”) The buyers want and need change over the years – or even one season to the next – and what may have been in high demand when you bought may be less desirable now.
Q: I understand it’s hard to determine my house’s true value until it actually sells, but I need to have a ballpark value. So what can I do if, for example, I need a valuation to buy out my co-owner/spouse, etc.?
A: There are several things you can do.
• Hire an appraiser. An appraiser will review recent sales in your neighborhood and make an objective report based on variables such as lot size, location or home condition. This will give you an approximation. For some context, divorcing clients of mine ordered appraisals from three different appraisers and received three different valuations that varied by 15 percent ($150,000, in this case). Appraisers don’t consider factors such as house flow, charm, landscaping nuances or popularity of features. In this situation, I counsel my divorcing clients to decide on the process to determine the value (for example, take the average/median of three independent appraisers) and then let the cards fall where they may.
• Review the online valuation companies. They are the least accurate, but they will give you a rough idea. I like to say that online valuations are 100 percent accurate half the time. I recently searched three popular sites for a house I was putting on the market and the values ranged from $2.8 to $4.5 million – quite a spread.
• Interview realtors who understand the local market. This is probably the best way to understand what the current, local demand is for a house like yours. Realtors will take into account things such as condition of house, schools, local demand, what else is for sale, season of the year, interest rates, national economy, how much you fix up your house and whether the yard is neat and tidy.
In the final analysis, the only way to know exactly what your house is worth is to sell it to the highest bidder. Short of that, any number you come up with would only be “fairly” accurate.