CO Home Owners – If you need help determining how much your home might be worth, please reach out. I provide this service free of charge.
Home Owners Located outside of CO – I may not have access to the data or the local expertise to give you a truly accurate Broker’s Opinion of Value, but I’d be happy to get you set up with a Broker who will gladly provide this service free of charge.
New Agents – Pricing a home is the hardest thing that we do, and this single task can make the process easy or hellish for both you and your Sellers. If you’re doing a Broker’s Opinion of Value and need help – feel free to reach out, and I would be glad to help you free of charge.
The Importance of Pricing a Home Correctly:
In this market, pricing a home correctly is more important than ever. There is no absolute correct price of a home because the true market value of a home is what a Buyer is willing to pay for it. While we can’t always predict this in a mechanical way, the market leaves clues about what other Buyers were and are willing to pay for a home, we can use this information to recommend a range of values to our prospective Sellers. When we follow the same methodology that an appraiser would use, we have a better chance of making the home selling process successful. If we underprice a home, in a slower market like we are in, we risk leaving some money on the table. If we overprice the home, we risk having the home sit on the market for an extended period of time. When a home sits too long, people assume that there is something wrong with it and the wolves begin to circle demanding a lower price. Even if we are successful in getting the home under contract, most Buyers will purchase with financing meaning that the Buyer will have an appraisal completed. Should the appraisal state that the home is worth less than the contract price, the Seller will either need to reduce the purchase price (which they may be unwilling to do), or the Buyer will have to bring the difference in cash (which they may be unwilling to do), or the deal will fall apart and we are all back to square one.
What does an Appraiser Consider when Determining Their Opinion of Value?
The Appraiser acts as a mathematician and a detective when trying to determine the value of your home. They are going to look for clues from past sales as “data” to rely upon. These are their first steps:
- Compare homes that are within +/- 20% of the square footage of the subject property (The subject property is the home whose value you are trying to determine). If possible, only compare like style properties to like style properties. For example, ranch style homes to ranch style homes, or two stories homes to two stories homes.
- Compare homes that are within a similar area. You only want to compare your subject property to homes that have sold within a maximum of a one-mile radius of the subject property. Depending on the housing density of your market, I recommend that you start within the same neighborhood or smaller areas and expand the radius only as necessary.
- Compare homes that have sold in a similar time frame as the subject property. Home prices ebb and flow depending on market conditions, and in a year like 2022 where we have seen drastic fluctuations in interest rates and competition – we want to keep the timeframe as tight as possible. While an appraiser is generally allowed to consider similar sales going a year back in time, most will start by looking at sales going back three months. If you can’t find any data then of course you may need to go back further in time. Keep in mind, if you are comparing the subject property to a home that sold in May, however, that you will need to make an adjustment for market conditions.
- Pick three comparable sales that meet the criteria from items 1-3. Try to pick the sales that are the most similar in condition and if possible, those which were marketed well. Make adjustments for differences in above-grade square footage, below-grade finished, and unfinished square footage.
- Make adjustments for any appreciation or depreciation. I look at MLS data, but you could also look at FRED Economic Data and County Assessor data.
- Make adjustments for unique features and quality adjustments. For example, consider location and views. Sometimes a home may have sold on the other side of the street but that comparable home backs to parks or open space. This could be a 5-10% adjustment. Also, consider things like views, which could be another 5-15% adjustment depending on the city. Other things to consider would be updates in kitchens and bathrooms. You might consider the age of the HVAC systems, roof, and windows. Make adjustments for 1 car garage vs 2 or 3 car garages etc, hardwood flooring vs carpet, nicely manicured lawns vs homes with lawns in poor condition, etc.