The Dramatic Change In How To Value A Home Today And Why It Will Be Around For Years
If you are thinking about selling a home, you should have a solid understanding of how to value a home.
And before you go off thinking that you already know how to value a home, I would strongly recommend that you keep reading to ensure that you understand what the foreclosure crisis has done to change everything for home sellers.
How To Value A Home In A Normal Real Estate Market
Historically, when I would teach a new real estate agent how to value a home, I would focus primarily on developing a comparable property analysis that looked at the scope of activity in the Tallahassee MLS. We would consider:
- Homes that sold in the past six months - Recent sales tell you what buyers have been willing to pay. So if the market trend is towards appreciation (values rising), we could put a market value slightly above the average of these recent sales. Of course, the converse is true as well. If the real estate market trend is depreciating, then a current market value would be slightly lower than recent sales.
- Homes that were currently on the market - Regardless of the recent sales, homes currently on the market represents the range of options for a buyer. For example, if recent sales in a Tallahassee neighborhood have been around $250,000, but current asking prices are around $225,000, it doesn't take a genius to know how to value a home to get it sold. The best deals will sell next, right?
- Homes that failed to sell over the past six months - This is the group of home sellers who tried to get more money than the market would allow (or who used a terrible home selling plan). By studying this group, you can gain a feel for what price will definitely be "too high." This group is full of people who don't know how to value a home or were just not motivated to do what it takes to be sold.
But things are different today. We need to add a fourth item to the list above if we really want to know how to value a home in today's turbulent market, and it requires an understanding of the foreclosure activity in your neighborhood.
The glut of distressed properties for sale in Tallahassee is no longer a niche of the market that can be ignored.
How To Value A Home In A Foreclosure Heavy Market
When we look at the real estate graph below, we see that distressed property sales now comprise more than 1/3rd of all the sales in the Tallahassee real estate market.
In fact, our recent report on foreclosures in Tallahassee shows that things are about to get worse before they get better.
Imagine that you used the traditional method in finding your home's value, and you put the house up for sale at that price. But the very next day, XYZ Bank put 2 homes on the market at 1/2 of your price, and both were within site of your home. Wouldn't that change the value of your home? After all, buyers could buy a home on your street for 1/2 of your price!
The dramatic change in how to value a home today is that we must go look at lis pendens filings to determine how many distressed properties are in the neighborhood. This will help us identify the future trend of values in the neighborhood, and also highlight your most likely competition.
And we know that this competition will be around for years.
How To Value A Home Today
Now that you have an understanding of the significant impact that foreclosures will have on the future market in your neighborhood, you simply need to make a decision.
You must choose whether to stay or go. It really is that simple.
But it is not easy! It is heart wrenching, I understand that (having made the decision myself over a year ago).
But making the decision, either way, is better than choosing to do nothing.
If you would like help in determining your options, just drop me a note and we can schedule a time to help you evaluate your present situation.
If you know how to value a home today, you will then know the most likely impact of your decision and what you need to do for the best result for the long-term health of your family.
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Great article Joe. I find that many agents do not go into this type of detail when coming up with a lending price for a home. You have closely paralleled the thinking process an appraiser goes through, and if buyers and sellers DON'T want the deal to fall through this is what they must do. Listing agents cannot ignore what the appraiser will consider. Props to you for being so thorough.
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