The Real Deal On Determining A Home's Value

Key Opinion's Of Value In Real Estate

For the most part, there are not many people who care what a home is worth. When nobody is interested in selling or buying the home in question, only Zillow has an opinion of what a home is worth :).

But as soon as a financial transaction is likely to occur, several of the following groups will crawl out of the woodwork, and you will be best served to understand their bias before accepting their valuation as the one on which you will make a decision.

Home Seller - When a seller is looking to value a home, they look for all the reasons why the home should be worth more. This shouldn't be too surprising, sellers usually want to get every penny possible when it comes time to sell.

Home Buyer - When a buyer is looking to value a home, they look for all the reasons why a home should be a better bargain. This shouldn't be too surprising as buyers do not want to spend more than they absolutely have to spend.

Neighbor Down The Street - Care to guess where this guy's bias lies? Sure, this person always thinks a home in the neighborhood is worth "extra" ... as it means his home is worth more too. It never hurts to get many opinions of value when it comes time to sell or buy a home, but this one likely represents a value ceiling far higher than the home will bear in the market.

Real Estate Appraiser - The appraiser is going to provide a valuation based upon a model designed to reduce the risk of third-party investors. Simply put, an appraisal is used by a bank or lending institute to make sure they don't lend "too much" money towards a home purchase. This means the bias is in favor of the bank, not the buyer nor the seller. You can learn a lot about real estate appraisals by studying appraisals done for other industries.

Real Estate Agent Interviewing For The Job Of Listing Agent - 2/3rds of all home sellers hire the first agent they interview. Agents interviewing for the job of selling the home know this, so they typically take advantage of the fact that the seller wants "more money" for the home and thus maneuver the presentation to be all about the home's value. Then they give a valuation higher than the home is worth in order to win the job. Obviously this works ... but it gives two out of three home seller's the false impression that they will sell the home at a higher value.

Real Estate Agent Showing A Buyer The Home - Much like a listing agent trying to land a listing, a real estate agent who is showing a home is just trying to land a contract. It is rare that an agent will give qualified advice on the value of a home (when they get paid to sell the home).

Your Properly Interviewed Realtor - Unlike the majority of real estate consumers, you can choose to interview Realtors until you find the one who can prove that they are well-trained and well prepared to help you with the job of buying or selling a home. Interview multiple agents, and ensure that you don't fall for the trick of selecting an agent based upon a valuation. Select them based upon the process that they can demonstrate will work in your best interests. Get the agent first, the value later!

You - Ultimately, it is your valuation bias that matters most. If you trust your agent and you know that she or he is an expert at determining market values based upon trends in your area and your neighborhood, then the value you place on a home, whether selling or buying, is the one that makes the most sense. As a seller, it will determine whether or not you want to sell your home, and as a buyer, it will determine how much that home is worth to you (not to some third-party entity that will not live there with you).