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Market
Value:
The price a home should sell for in
a typical marketplace transaction. What a buyer is willing to pay for a home under certain
circumstances.
What Is Appraised
Value?
It’s an objective opinion of value, but it’s not an exact science so
appraisals may differ. For buying and selling purposes,
appraisals are usually based on market value—what the property could probably be sold for. Other
types of value include insurance value, replacement value, and assessed value for property tax
purposes. Appraised value is not a constant number. Changes in market conditions can dramatically
alter appraised value. Appraised value doesn’t consider special considerations, like the need to
sell rapidly. Lenders usually use either the appraised value or the sale price, whichever is less,
to determine the amount of the mortgage they will offer.
Misunderstanding of Improvements:
Certain improvements that a seller may make do not necessarily
increase a homes worth. For example, a home with new carpeting that cost $5000 will probably not
sell for any more than the exact same home with carpeting that cost $2000. Some improvements such
as swimming pools only retain a percentage of their original cost. These improvements enhance a
homes appeal, and are attractive to buyers, but they normally only retain a certain percentage of
their original cost.
Under normal circumstances there are usually four factors that
determine a homes value: Square
footage, Lot size, Condition and Area.
Analysis of Value:
We are always asked “what do you think this home is worth? ” While it
is possible to give an opinion of value “on the fly”, it is more accurate after we have conducted
an in depth study of the home and the recent comparable sales. To do this, we look for at least
three home sales within the previous six months of homes similar to the home being considered. We
then note what the three comparable homes actually sold for, whether there were any unusual market
conditions affecting those sales, and all the characteristics that contribute to the “value” of the
homes: square feet, location, etc.
Why Determining Market Value is
Important:
If a buyer must obtain a loan to purchase your property, the loan
will be subject to an appraisal. If the property is overpriced and the appraisal is lower than the
selling price, then three things can take place;
1. The buyer could get out of the deal because it appraises for less
than the contract price.
2. The buyer could pay the difference and come up with extra down
payment funds.
3. The seller could lower the price to the appraised
value.
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