Lets talk about house value: what is it, how is it determined, why does it change? If you own a home or are looking at buying one in the near future you've probably heard terms like "appraised value" and "market value". If you're looking at buying a home for the first time and are comparing prices you might be wondering how those list prices were determined in the first place.
Market value is the value that you should be concerned with. Your house may have been appraised at this value, or you might have paid x amount for it 2 years ago, but at the end of the day those things don't matter when it comes to the price a buyer will pay for your home today. A house is worth what a buyer is willing to pay for it. Nothing more and nothing less.
If there are more buyers then there are homes to buy then the price of houses will increase. Likewise if there are more houses then home buyers, the prices of houses will decrease as sellers are competing for buyers. House prices are determined by comparing what has sold in the area and what is still for sale to the subject property. No house is exactly alike however, given a few comparable properties and judging the condition of the subject property to these comparables will provide a fairly accurate evaluation of the market value of the subject property.
How do I know if i'm paying a fair price for my new house?
While searching for a house you may notice houses being reduced in price. This doesn't always mean you're now getting a deal, if the initial asking price was more than its market value. If there are three nearly identical houses for sale in the same area and two are priced around 400,000 and the other one is priced around 440,000 which do you think will sell faster? The houses at 400,000 will sell before the one at 440,000, and then a month will go by and the seller of the 440,000 house will reduce the price to 400,000 bringing it to a price that is much closer to its market value. But by this time, leaving it on the market can impact the selling potential negatively.
House shopping is like any other other comparison shopping, except on a grander scale.
Lets use car shopping as an analogy. If there are two identical makes and models for sale and one is $15,000 and the other is $20,000, which do you think will sell first? We don't like to pay more for things than we have to, and this holds true in the housing market as well. If I can get a house with the same number of bedrooms and bathrooms and very similar features to one down the block for $50,000 less, it's obvious which one I’ll buy.
Figuring out the market value of your house can be this simple: put yourself in a buyers shoes and ask yourself, "if I was house hunting right now, would I even consider this house based on the price and how well it shows compared to what else is on the market?" It can be easy to get wrapped up in the sentimentality of home ownership and not be able to objectively look at our house. This is where it helps to have a third party (Realtor) who can help you understand that while the marked heights of your kids on the door jam are lovely memories, they are not adding value to your house overall.
As a Realtor I want to get a fair price for my buyers and sellers, and this almost always comes down to the market value of the home. There are always exceptions to the rule: a house sells for x amount more than the one down the block that's exactly the same, or a buyer gets a deal because a couple is divorcing and need to have the property sold, like, yesterday. But that's why those cases are exceptions and not the rule.
Consult your Realtor and have them show you comparable properties and prices, because this is how you will determine the value of your current home in today's market and likewise if you're buying a house, those comparables will show you if you're paying a fair price.
If you have any questions about the value of your home, or if you've just started looking at houses and want to learn more about how to determine the market value of a house, contact me at firstname.lastname@example.org