Selling Your Home - Appraisals, Assessments & Market Analysis
What is the difference between Market Analysis and Appraised Value?
The appraised value of a house is a certified appraiser's opinion of the worth
of a home at a given point in time. Lenders require appraisals as part of the
loan application process; fees range from $300 to $400. Market value is what
price the house will bring at a given point in time. A comparative market
analysis is an informal estimate of market value, based on sales of comparable
properties, performed by a real estate agent or broker. Either an appraisal or
a comparative market analysis is the most accurate way to determine what your
home is worth.
What's a house worth?
A home is ultimately worth what someone will pay for it. Everything else is an
estimate of value. To determine a property's value, most people turn to either
an appraisal or a comparative market analysis. An appraisal is a certified
appraiser's estimate of the value of a home at a given point in time.
Appraisers consider square footage, construction quality, design, floor plan,
neighborhood and availability of transportation, shopping and schools.
Appraisers also take lot size, topography, view and landscaping into account. A
comparative market analysis is a real estate broker's or agents informal
estimate of a home's market value, based on current sales of comparable homes
in a neighborhood. Local Realtor's often have intimate knowledge of certain
neighbourhoods and are actively working with buyers looking for homes. They
will often place value on certain attributes that they know will be
appealing to buyers at a particular given time.
What Does Assessed Value have to do with Market Value?
There are several things to consider when determining the pricing of
your home for sale. The most common benchmark people use is the Assessed
Value. This is the value used by local governments to determine your
property taxes. However, this is not a reliable standard of measurement for
pricing your property for sale. A quick survey of recent sales and their
relation to assessed values will tell you that. In past years, we
have found it useful to know 'the general relationship' between market value
and assessed value. For example, when we would do a Current Market Analysis
for a client, prices tended to fall between 110% and 120% of assessed value
on average. However, since mid-2008 there seems to be a shift.
Instead, properties are priced on either side of assessed value, some just
below, some at assessed value, some just over assessed value, and some way above
assessed value. There seems to be no clear relationship between sale price and
assessed value these days. It's all over the map.
How Do You Figure Out the Market Value of Your House?
One way to determine the list price of your home is to get a realtor to
do a Current Market Analysis (CMA) for you. This will usually include a range of comparable properties to
yours, usually within your neighbourhood. However, if you have a particularly
unique property, they may need to search a broader area to find those
comparable properties. Also, if there has been little activity in your area,
they may need to go further back in time than just the past few weeks or
months. Some realtors will do a CMA in a written report format, while
others will simply pull a selection of comparable properties together and go
through them with you.
A professional appraiser spends all their time appraising properties,
they are paid for the work they do, and their reports are often seen (by
buyers) as less biased. A real estate agent will do 'an estimate'. An appraiser
will do a Professional Appraisal.
Most buyers don't care much about what anybody else thinks the house is
worth. They care what they think it is worth. And if the home is in a state of disrepair or needs substantial renovations, they may see things quite differently.
You only need one Buyer, so given a sufficient length of time on the market with sufficient exposure, the market value of the home is ultimately determined by what a buyer
is willing to pay for the home, in a price range acceptable to the seller.
Different Types of Appraisals
It is important to note that there are two kinds of professional
appraisals. There is the marketing appraisal, such as the one mentioned
above. And there is the financing appraisal, which is done so the bank
is satisfied the house is 'roughly worth' what the buyer and seller have agreed
it's worth. This means that when the appraiser goes in to evaluate a house for
a financing appraisal, they are working for the bank ensuring that the
price you paid for the home is in line with what they consider fair market
value. This is for the banks protection, so that if you default on your
Mortgage and the bank needs to foreclose, they feel comfortable they can get
their money back when they sell it to recover their funds. As they are just
ensuring their investment, we rarely see a financing appraisal
value differ significantly from the sale price. Don't be surprised if, when buying a home, you find your financing
appraisal comes within $2,000 of the sale price. It is not a good standard
of measurement for whether or not you 'got a great deal'.
Finally, please seek legal advice if you are ever approached by somebody wanting to purchase your home in a private sale. There are instances, one of which we know of personally where an elderly lady sold her property well below market value in private sale, when someone knocked on her door to ask if she was interested in selling. You deserve to get as much as you possibly can for your home, based on the current market conditions.