The ability to assess property values is not just for professionals, research and comparison of recent sales will allow you to develop house valuation acumen.
Maybe it is time to buy a house or maybe you are considering selling or refinancing one you already own. Chances are you have been keeping an eye on the real estate market and what is available. If that is the case, congratulations! You’ve taken the first step towards determining the market value of your current or future home! However, the work does not stop with merely knowing recent sales in your area. Quite a lot goes into determining the actual value of any home. Square footage, special features, neighborhood, age, and condition are among the many things appraisers consider when establishing the value of a home. That said, you do not have to be an appraiser to gain insight into the value of a particular property. The best way to achieve a basic skill in determining the value of any home is through researching and comparing homes that have recently sold.
Realtors have at their fingertips current home listings as well as recent sales. They, and mortgage companies, refer to homes sold within two miles and 6 months of a home in question as “comps”. So, how important is a comp, or comparable listing, to your research? Well, suppose you are interested in buying a 4 bedroom, 2 bath home that is listed at $225,000. How do you know if it is a fair value? A good place to start is to compare it with recent comps of similar size. Is the list price in line with recent sales? What should you think if that amount is $15,000 more than another 4 bedroom, 2 bath that sold two weeks ago not two streets over? Is the seller asking too much? Not necessarily. Now is the time to look more closely at comparable home sales and take note of any differences between the house in question and the closest comps. For instance, does the more expensive property have special features? Is the lot especially large? Does it have more square feet, extra buildings, or a pool? If so, the asking price may be more than justified. In order to know how much those extras add to the value of a property you may need to move beyond what you can glean from public information sources and start creating comps of your own. In other words, if you are serious about getting a good idea of property values, you would be well advised to learn as much as you can about homes currently on the market. Start by compiling detailed records about those properties. If a basic 3 bedroom, 2 bath house on an average sized lot sells for $185,000, but the same model house on a lot twice the average size recently sold for $195,000 you can be fairly certain that an extremely large lot adds $10,000 to the value of a home in that neighborhood. Comparing recent sales of similar homes and listing their attributes versus their sales price can help you come up with a good idea of the basic value of certain property characteristics. This may entail much more effort than merely scanning the Sunday paper and using a search engine designed to find recent sales in your area. So, be prepared to not only keep up with online listings, but also to visit open houses, take notes, and follow up on sales prices. Still, keep in mind that even your estimates based on this information are only as good as the amount of time that has elapsed since you gathered your facts.
Timing in the real estate market can have a tremendous effect on home values. Prices tend to be higher in the summertime because there exists a preference to move during that season. The weather tends to be warmer and parents appreciate the benefits of not changing their child’s school during the academic year. Since demand is greater, prices are usually higher. The reverse is true for the wintertime. Houses may remain on the market longer and the sales price may be lower than expected. In short, comparing sales of homes in opposite seasons could lead to a slightly skewered determination of value. Also, season aside, a lot can change in six months. Major employers can cut employees or add more jobs and that directly affects the demand and, hence, value of property in a relatively short amount of time. In other words, it is smart to gather information, but do not forget to take into account the larger picture of season and events when seeking to apply it to home valuation. This especially holds true if the house market is hot. During times of particularly high demand and low supply, home values can double within a year. This is a glorious time for a home seller, but a very dangerous time for a homebuyer. Home prices tend to inflate rapidly as bidding wars ensue. Tensions may run high as buyers, eager to snatch up the house of their choice, get caught up in the chase and try to out do their competitors. When that happens, it can be very difficult to assess the real value of a home. When what was worth $175,000 three months ago is now valued at $200,000, what will it be next week? An even more frightening question for the buyer (and any potential lenders) is whether or not rapidly elevated values are genuine. Will they hold if the supply increases? Will they plummet if one business eliminates jobs? Even armed with the best knowledge, a seller is well advised to consider carefully the long-term stability of prices before jumping into an intense market. If you have any doubts about what decision to make, consult several professionals and get their take on the longevity of recent prices. They make it their business to cultivate contacts that will provide them with information regarding future plans that may impact the real estate market. Generally speaking though, unless you plan on investing in multiple properties or the market is unusually fast paced, you can get a pretty good idea of property values without the assistance of a professional.
Whatever your real estate goal, understanding property values can be done by anyone from a housewife to a retiree. Even just by keeping track of recent sales and noting the value of different amenities, you can build up a storehouse of knowledge with which to ascertain the value of other comparable properties. The caveat is that you must know how and when to apply your newfound skill. Even though you may develop a valuation sense that is always right on the money, some real estate markets demand the expertise of a skilled professional. Yet, that does not mean you should not arm yourself with all the information you can gather. Having a feel for the market will allow you to be more comfortable in the choices you make and, if necessary, more easily justify the value of a house in the face of a recalcitrant lender. Knowledge is, as the saying goes, power and that definitely holds true when it comes to the home valuation process.
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