Monday, April 28, 2014

How Do You Determine The Value of Your Home?

Have you ever wondered how realtors come up with a number to suggest to you the sale price of your home?  Well, it’s not as complicated as you may think.  They prepare what is known as a Competitive Market Analysis (CMA).  Although, a CMA is not an appraisal, it does contain some of the same types of information that you'll find in an appraisal.  Generally, features that are of interest to buyers are considered in the calculation of a CMA.  Such things as granite countertops, wood floors, number of bedrooms and bathrooms, square footage of the home, pool in the backyard and even things such as a circular driveway are used to determine the home’s value.

The objective of pricing a home for sale is to create a baseline price to use as a reference in determining a fair market price for your home in the marketplace.  That is done by taking the price of homes that have been sold recently, and compare them to your home.  Comparable homes means, homes that have similar features to yours.  Once items considered of interest to buyers in the marketplace are determined, a value for each feature is created. This tends to be more art than science by trying to assess what the current value of a feature is worth in order to build or replace – which sometimes is difficult to do.

Once that is determined you now search for comparable homes, usually three to five similar ones, to use in the analysis. What do you do if each home doesn’t have exactly the same features as your home? You make adjustments to the property you are comparing to your home. So, if the comparable has a pool and yours does not, you deduct the value of the pool from the comparable home (never from your home). If you have a pool and the comparable does not, you add the value of a pool to the comparable home thus making the comparable home similar to yours.

Once you have added or subtracted all the features’ values from comparables you then take the resultant prices and average them out to come up with a possible selling price.  The process is not terribly complicated, but sometimes the value you assign to each feature can skew the pricing model a great deal.  Understanding the marketplace in a particular community can help in establishing an accurate value for each feature and in turn your home.

A property does not sell based on the prices of sold homes alone — supply and demand is also a factor.  In a rising market the supply and demand factor will make listing prices more important.  In a steady market, it is the sold prices that will be given the most weight.  In a falling market, it may actually be the expired properties (those that could not be sold at the listed price) that show what the trends are and how much the subject property is actually worth.  The current environment in Trophy Club is what is known as a seller’s market. There are more buyers in need of homes than owners willing to sell their homes so the seller has an advantage when it comes to pricing.  This community is also a highly sought after city for a number of good reasons.  We have an excellent location in the Metroplex for commuting, lower taxes than surrounding counties and a highly desirable school system, to mention a few.  This factor along with the price of sold homes in Trophy Club combine to make up a CMA.

One disadvantage a CMA has for a homeowner is the fact that prices used in calculating a possible selling price is past history.  It doesn’t necessarily take into consideration the percentage increase in homes that is occurring as a result of demand.  Again that can be more art than science when trying to include potential price increase in a home value. However flawed the CMA method of market analysis may be, it is still the best approach currently available to realtors to evaluate a home’s sale price.

(As published in the monthly newspaper, Trophy Club Tribune, on 28 April, 2014.

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