Should You Apply The Diamond 4 Cs To Determine The Value Of Your Home?

I was recently reminded about the confusion homeowners sometimes have about the home valuation process when somebody shared a parallel story about valuing a diamond ring at an estate sale.

The estate of an elderly woman was being valued, and the diamond ring had a wonderful history.

It turns out the ring had been handed down in the family for more than 100 years, thus the family felt for sure it had to be valuable. For our readers who watch The Antiques Roadshow, you'll know they were referring to the provenance of the ring.

When the valuation was delivered, they were shocked to discover that the appraiser gave no value to its provenance (apparently Elvis was not in their family tree), but instead relied upon the 4 Cs of diamond valuation (Cut, Color, Clarity and Carat Weight).

In other words, there is a long-accepted practice that determines the value of a diamond.

All the emotional value they placed in the knowledge of who had once owned the ring was not something of value that transferred with the sale. The same is true with a home in that we often times, as homeowners, have emotional connections to the memories in our homes that make us want to value the home higher than will buyers in the market. It is important that we understand that we get to keep this emotional value after the sale, whether it is a home or a diamond.

Well, just as with diamonds, there is a long accepted practice that appraisers and real estate agents use to determine the value of a home.

Apply The 4 C's Of Value To Homes

The 4 Cs might be a perfect model for determining the value of a diamond, but homes bring more variables to the table and require a more comprehensive analysis. But we can still use the 4 Cs to gain and understanding of the home valuation process:

How homes are like diamond rings

Cut - The skill and craftsmanship behind the way a diamond is fashioned into a market-ready gemstone is the most important element in determining its value.

This is not so much the case in real estate. If you build the highest quality home with only the most skilled tradesmen, but you build it in the wrong area, it might have little to no value in the market today.

Unlike a diamond which is easily moved (to a better location), that is not the case with a home built in the wrong location.

Even when a home is built of the highest quality in the right area, it's value will be generalized to the homes around it. Often times, home sellers will explain that "the marble was imported from Italy" or "the cabinets were hand made by Amish Furniture craftsmen." While you do have to pay more to have work and amenities like these when you build, you rarely see an equivalent rise in value of a property when it comes time to sell. This is why you should seek advice on not only what to build but where to build it if you want to optimize the resale value of your home.

Color - Diamonds occur in many hues, ranging from the cheapest which are brown to the most expensive which appear colorless. In real estate, homes not only come in different colors, but they feature different amenities, options, and features. A plain square home with a flat roof will usually be worth less than one that has a well-pitched roof and a view of the lake. There are so many varieties of homes and so many different features and amenities that we must consider in order to determine its value.

Clarity - Even the most expensive colorless diamonds have inclusions and blemishes. The larger and more prominent these imperfections are, the less valuable the diamond. I would equate clarity in diamond valuation to property condition when determining the value of homes that are listed for sale. A home in better overall condition will bring more to the seller than one in poor condition. The key is for the homeowner to work on the profitable changes to make to a home before listing it for sale.

Carat Weight - The size of the diamond is also a factor in determining its value and the same is true for a home. Generally speaking, just as a larger diamond is generally worth more than a smaller diamond (of the same cut, color and clarity), a larger home is worth more than a smaller home if all other conditions are equal.

How To Determine The Value Of Your Home

I would forgo the 4 Cs and instead use the homes that are similar to yours and near yours to help determine its value.

You should look at homes with similar amenities and roughly the same size and number of bedrooms and baths that are on the market now. Those are the homes which you would need to compete with were you to put your home on the market today.

The following tool will give you a list of the homes for sale nearest your home.

I hope our article on valuing diamonds has brought some clarity (pardon the pun) to the process of valuing a home in Tallahassee. If you have questions not covered in this post, simply drop me a note and we'll be in touch right away.

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