If you’re considering downsizing or moving to a senior living community, one of the first items you may be wondering about is, what is the value of my house.
Types Of Home Valuations
There are a few basic types of home valuations to help determine the value of your house, and its important to understand the differences between them. There are county assessed values, appraised values, broker price opinions, online web site valuations, and market valuations.
The Assessed Value is the value placed on your property by your local county assessor or similar local government agency. This is the value that is used to determine your property taxes.
Assessed values are typically lower than market value due to the county offices that set these valuations based on a percentage of the sale price of recent property sales. Since the market is historically going up in value, these values are usually lower than market value due to the assessor “chasing” the market. However, when the real estate market corrects, or declines, these values may be higher than the actual market value.
Assessed values do not typically take into account the condition of the property. If a property needs updating, it may still be assessed the same as other properties in the neighborhood that are in much better condition, with higher market values.
In summary, the Assessed Value is one tool to consider for a market value, but only one piece of the puzzle.
An appraised value is an “opinion of value” when a professional property appraiser conducts or creates an appraisal. The appraiser will provide a value based on the size, location, condition or finish, of your house (the subject property) compared to other similar houses that have sold in the previous six to twelve months, in your neighborhood or subdivision.
As the definition of an appraisal implies, this is an opinion of value. If you have three appraisals conducted, you will most likely get three different valuations.
Although most appraisers should provide an accurate value, they will sometimes use “comps” or comparables of houses in different neighborhoods or subdivisions that will not provide an accurate value of the “subject” property.
One item that is oftentimes misunderstood is that an appraisal value will be a “gross” number valuation, not the “net” amount that the seller will receive if they sell the property. We will discuss gross vs net a little later in this article.
BPO or Broker Price Opinion
A BPO or Broker Price Opinion is an opinion of value provided by a real estate agent or broker. Since they are not typically licensed as an appraiser or provide a professional appraisal, real estate agents or brokers will provide a BPO to clients or potential clients, typically for no cost.
The information for a BPO will come from the local MLS (Multiple Listing Service), which is typically where appraisers get their information. The local MLS is generally the most accurate source for information of houses that have been Listed and have sold or not sold.
A BPO is oftentimes as accurate as an appraisal, although the agent can sometimes pull comps from close by higher priced subdivisions or neighborhoods, to show a higher value for the subject property in an effort to get a listing.
As with appraisals, BPO values are “gross” numbers and not “net” values.
Online Web Site Valuations
I often hear people say that the value of their house is “x” because one of the online valuation sites like Zillow, Realtor.com, or others, say it is. This may or may not be accurate.
Online valuation web sites aggregate information from public sources in an attempt to determine valuations. These are referred to as an automated valuation model.
What they are not able to apply to their valuations is the actual condition of the property or other non public characteristics of a property that may have an effect on the property value.
Fair Market Value
Fair Market Value is, ultimately, the price a buyer is willing to pay for your house. The fair market value is only determined after a transaction is closed.
The best way to determine fair market value before a sale, as close as possible, is to objectively look at the comparables in your neighborhood or subdivision, find the most comparable houses (most similar to your house), with the most similar condition, that have sold.
To get the best picture of the current market, I always recommend looking at the Active, Pending, Cancelled, and Expired listings, along with the Solds.
Now, lets briefly discuss an item that applies to all of these valuation methods- What I like to call The Law of Gross vs Net.
The Law of Gross vs Net
The Law of Gross vs. Net is simply the reality that if you sell a house in a traditional manner, or have your house valued in one of the above manners, you may sell the house for a “gross” number, but your “net” amount that you can put in your pocket will be less.
It can be confusing when an agent says they can sell your house for $200,000, for example, when the $200,000 is a gross number, not the actual net amount that you will receive from the sale.
When a person sells a house, there are inherent Transaction Costs that must be considered. Expenses such as Marketing Costs, Closing Costs, a Buyer’s Discount, and Miscellaneous expenses such as correcting deficiencies identified from a buyer’s whole house inspection and appraisal.
Marketing Costs are an amount that it costs to market a house and find a buyer. These are typically the 5% to 7% commissions or fees paid to a real estate agent. A seller doesn’t have to use an agent, but they will still have expenses to attract a buyer.
Closing Costs are items such as the fee to a closing company or attorney to close the transaction, title insurance, recording fees at the county offices, pest inspection, whole house inspection, appraisal, and the costs and fees for the buyer’s new loan.
The above items are traditionally split between the buyer and seller, but depending on the current real estate market, the buyer will typically ask the seller to pay for some or all of their closing costs.
The Buyer’s Discount
A Buyer’s Discount is not something we’ve seen much of for the last few years, but historically, the buyer will always offer less than the asking price. This reality is what I call the buyer’s discount.
An additional item to look at in most markets, is if the Sold listings have been reduced in price from their initial listing price. There can often be a big price difference from the listing price at the time of sale vs. the original listing price.
When a traditional buyer purchases a house, they typically always get a whole house inspection and an appraisal. The whole house inspection is to hopefully ensure the buyer knows if there are any “deficiencies” they may be unaware of with the house. The appraisal is generally required by a lender and can also uncover deficiencies.
Again, depending on the current real estate market, these deficiencies provide an opportunity for the buyer to renegotiate with the seller.
In most markets, the above Transaction Costs can add up to 10% to as much as 15 to 20% of the original listing price of the house. So, if an agent tells you they can sell your house for $200,000, for example, the amount you will actually receive from the transaction will realistically be $160,000 to $180,000 depending on your local real estate market.
The above numbers assume your house is in a “nice” condition. If your house needs repairs or updates to bring it up to the condition of the sold comparables you are using for your potential valuation, you will need to deduct this amount from your net value number.
One of the most difficult things I do when inspecting a house is being realistic with a seller about the repairs and updates I think are needed to bring the house up to its Potential Value.
I do my best to put myself into the shoes of a potential buyer to determine what needs to be updated or repaired to make the house “nice.” Even if the current condition of the house is good enough for the current owner, it may be below a potential buyer’s expectations because of other houses they have looked at during their home search.
If your house could use some updates and repairs, I strongly recommend educating yourself on the current costs of those updates and repairs. Everything is much more expensive than they were just a few years ago.
So, What Is My House Worth?
After considering all of the information we’ve just discussed, I like to provide sellers with three valuations for their house. 1. An approximate net amount I think an “overly optimistic” real estate agent would provide. 2. An approximate net amount that a realistic real estate agent would provide. And 3. A “net” cash offer that a professional home buyer, like Home Downsizing Solutions, could provide based on the current “as is” condition of the house.
The Overly Optimistic Real Estate Agent Value
The last few years of the real estate market have given agents a reason to provide what I consider overly optimistic values for houses. The demand along with what were very low interest rates provided good reasons for these valuations.
Agents provide an “estimated seller’s net proceeds” sheet to provide an estimated “net” amount the seller will receive, assuming the house is sold at asking price and the seller only pays for the agent’s commission and customary closing costs. In most markets, this is typically not realistic.
The Reality Based Real Estate Agent Value
I also like to provide what I think is a more realistic “net” amount that the seller will receive from a traditional sale.
The Home Buyer Cash Sale Offer
Last, I provide a “net” cash amount the seller can receive if they were to sell the house “as is,” close on the date of their choice, leave any or all of the “stuff” in the house, receive help with organizing and moving the stuff they do want to take, and make the transition to a new home or apartment as stress and hassle free as possible.
What House Selling Benefits Are Important To You?
The value of various house selling benefits to you and your specific situation will help determine the best house selling option for you.
If you are not pressed for time, have a house in great condition or are able to do repairs and updates to bring it up to a "nice" condition, don't mind getting and keeping the house in show ready condition, and can work with the other sometimes frustrations that can come with a traditional house sale, then selling a house in a traditional manner may be best.
If you'd like to sell your house in its "as is" condition, not have to do any repairs or updates, leave whatever "stuff" in the house you don't want or need, not have strangers coming in and out of your house, not having to deal with the uncertainties of a whole house inspection or appraisal, know what you will "net" from the sale of your house, and have flexibility to move when you want, then a home buying company may be the best option.
If you’d like to get a realistic value of your property in today’s market, just fill out the form below, or call us at (855)-291-5005, and we’d be happy to meet with you, inspect your property, and provide the most accurate values for your property, specific to you!