With divorce, you may be wanting to sell your home and downsize. What is your house worth, anyway? Here is some information about making a valuation overview of your home.
Your house is worth whatever a willing and able buyer would pay for it today. The best way to determine that is to find out what other comparable properties (comps) have sold for recently. The key words here are comparable and recently. Good comps are homes that have sold nearby with similar characteristics to yours, taking into account age, square footage, lot size, and number of bedrooms and baths. It’s also important to factor in amenities such as swimming pools, spas, or upgrades — so long as they can be assigned realistic dollar values.
The most important factor in determining value is time. The value of a comp depends on how recent the sale was. In volatile markets prices can change almost daily; a sale may be irrelevant if it was from last month, let alone last year. Ideally, you will want to consider sales within the last three months, six months at the most. The most current sales are going to bear the most weight. What’s more, since the real estate market uctuates so rapidly and a valuation is only good for the day it was done, you will want to have the home’s value reassessed closer to settlement so that it is as accurate as possible. Real estate professionals will use the most recent comps available to formulate a value.
The neighborhood is also critical. You may have heard the cliché that the three most important things in real estate are location, location and location. There’s an element of truth in that. The house one block away might be part of another development that has a totally different character and reputation. If your house is in a cul-de-sac while the comp is on a busy thoroughfare, that affects its relative value. Are there apartments next door? A factory? Power transmission lines? All these a eat a property’s desirability. A skilled real estate professional will take them into consideration.
Size is one of the most crucial factors to consider. Among the first numbers that real estate pros look at is the square footage. This calculation only considers living space— not garages, tool sheds, or covered patios. If your next-door neighbor’s house sold for $400,000, don’t presume that yours will too. Check out the square footage; if his house was 4,000 square feet while yours is only 2,000, then yours will probably be worth considerably less.
The perfect way to incorporate all these factors neatly is to find a house that is a model match to yours. Even then, differences must be considered that will affect the relative value of each: improvements or lack thereof, maintenance, location, etc. Unfortunately, the amenities in your property may not be as helpful as you think. Some improvements enhance the desirability of a home, but not the price. They may have great value to you, especially if you put time, sweat, and money into them, but that doesn’t always translate into increased market value.
Moreover, the improvements you’ve made may not appeal to all potential buyers. You may have just installed new granite countertops, but that won’t mean much when granite falls out of fashion. Your pool may have cost you $40,000, but not all buyers want a pool. For some — especially those with small children — the pool may be considered a liability and so may not improve your sale price at all. The most important factors in determining value are the hard numbers, which are not easy to change: year built, square footage, number of bedrooms and baths and lot size.
A popular misconception is that value can be determined based on the asking prices of nearby homes. But remember, sellers can ask any price they want. What matters are closed sales, since they indicate what buyers have actually paid. Many times the nal sale price will differ dramatically from the initial asking price. A skilled professional will recognize trends in the prices of active listings (those still for sale) and, more particularly, in pending sales (those that have entered the contract phase but have not yet closed). In a fast-moving market your asking price may be adjusted according to these trends — but only with great caution. A diligent agent will call the listing agents on those pending sales to uncover the actual sale prices. That will provide a clear idea of where the market is heading, and how fast it is moving.
Buyers who aren’t paying cash must rely on mortgage loans to make their purchases. And real estate lenders are normally very careful not to overpay for properties. That means your price must satisfy not just the buyer — but the buyer’s lender. With all these factors to consider, how does a homeowner obtain a reliable valuation? We’ve already discussed the cheapest way — the free online estimate, which is often worth exactly what you pay for it. There are two more reliable ways: the formal appraisal and the comparative market analysis (CMA).
Except from THE HOUSE MATTERS IN DIVORCE by Laurel Starks, Unhooked Books.