As a Realtor in Southern Maryland, I am frequently asked by homeowners to do a comparative market analysis (CMA) on the current sales value of their home. Quite often, people are shocked to find out that their home is worth less than what they had imagined; a sign of the market downturn and overall economy at large. It's important to understand that a home's market value is really determined by the end buyer. It doesn't matter what you think the home SHOULD be worth, it matters what the buyer is willing to pay. When trying to set a sales price for your home, keep these concepts in mind to ensure your home is priced properly and is able to sell.
$20,000 in Home Improvements May Not Equal $20,000 in Added Value.
Thinking about spending big bucks remodeling your kitchen or adding an in-ground pool? Make sure you look at the big picture. Buyers love updated kitchens and appliances, but if the bathrooms and wall coverings in the rest of the house are dated, you may not be adding dollar for dollar value to the home. In addition, pools are a great benefit to SOME people. While you may love the idea of having one, some people would prefer not to, and may have concerns about small children and safety, causing your home to be crossed off of their list instantly.
Having the Best House in the Neighborhood Can Be a Hard Sell
If your home has been massively remodeled and no other homes in the community compare, you've got two problems. First, buyers who can afford your asking price could probably afford an average home in a nicer neighborhood, meaning that you've got to find a buyer who wants to live in an area where everyone else's home isn't as fancy. Second, when you do get a contract on the home, the appraiser has to find value based off of other comparable homes in the community. If nothing else compares, the appraiser may not see the value that you and the buyer see, and the buyer won't be able to get their loan.
What Your Neighbor Sold For in 2006 Doesn't Matter
There is no direct correlation between what homes sold for at the peak of the market and what they're worth today. Your neighbor may have gotten $200k more than you can today, but it's likely your neighbor also bought something else that has seen it's value drop as well, so don't assume that the neighbors made out like bandits by selling at the peak.
Your Mortgage Balance Has No Bearing On The Value
Just because you owe $350,000 on your mortgage doesn't mean that your home is worth the same amount. The lender doesn't care what the home is worth, they only care about how much money they agreed to loan you to buy the house. If you owe more than the home is worth and you want to sell, you're either going to need to write a big check at the settlement table or negotiate a short sale on the property.
How Much The Buyers Are Qualified For Doesn't Affect The Value of Your Home
If you find out that the potential buyer for your home has been approved for up to $350,000 and they only offered you $300,000, don't assume the buyers are willing to pay more. Furthermore, if the buyer is qualified for far less than what you feel the home is worth, it may be best to wait and find a better buyer. Ultimately it comes down to what you are willing to accept for the property, and what the buyer is willing to offer.
Your Realtor Doesn't Control The Value Of Your Home
Realtors don't control value, buyers and sellers do. There is no magic Realtor wand that can be waved to make your home more valuable. Realtors analyze the market to come up with a fair market price for a home, but they don't control what price you ultimately choose to list your home for. If you and your Realtor have 2 different values in mind, see if your Realtor will list it for your price and then agree to lower it if doesn't sell. Agents should be able to accurately price a home, but if you feel that they are off base, bear in mind that the final listing price is at the seller's discretion.
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