Home value is in the eye of the buyer, right?

If you are thinking of selling your home, you may have been seduced by neighborhood talk about how sought after the homes in your neighborhood are by potential buyers.  With that level of interest, isn't it just a matter finding a buyer who is willing to pay top dollar?

Not so fast…

After the recent real estate meltdown, banks and the government went back to basics and have made the appraisal process more critical in establishing the final sales price.

You can list your home and name your price, find a buyer who agrees to pay the price--and  you may still have to negotiate that price lower when the appraisal comes in. Why? Prices moving up too quickly could result in another real estate bubble.

How do you establish a sales price that will be confirmed with the appraisal?

A Realtor® should be able to help you establish a fair market price after putting together a Comparable Market Analysis (CMA). This tool takes the property in question and adjusts the price based on the features of homes that have sold recently. It is a way of establishing the baseline value for a listing price. A good CMA will be very close to an appraisal done by an informed appraiser.

Yes, supply and demand play into this. If there are very few listings in an area, it would be silly not to expect a seller to profit from these conditions. The appraisal will note this and, in many cases, allow a certain amount of price escalation. What the banks are trying to avoid is a situation like the market was in in the 2005-2008 time frame when a seller would just tack a 10-20% increase over the price of the last home sold.  That kind of escalation is not sustainable and will, eventually, result in a bubble.

If your home is unique and there are not any near by comparables, another option is to hire an appraiser to help you determine fair market value.

If you are thinking of selling your home, you owe it to yourself to have a solid understanding of the your home's fair market value.  Ask a Realtor® for a Comparative Market Analysis and avoid having to adjust down your contract price!