As a Buyer's Realtor you want to make sure your client is not overpaying for one of the largest investments of their life...Their Home!
As an Appraiser, I do not like to see a large gap betweenintrinsic value and market value. What is the difference and why does it matter?
Intrinsic value: What does that home really offer to the buyer, without outside influences taking hold. Things like square footage, location, lot, quality, condition, style, appeal, etc.
Market value on the other hand is what a willing seller and willing buyer (both acting with reasonable knowledge of the market and under no undue distress) agree to on a sales price.
Technically, Appraisers are reporting market value for a property. However if that sales price is LESS about the property and more about outside influences, that can lead to market corrections later on where the buyer will LOSE! Right now I am seeing a larger gap than is preferable in some markets.
So what are the top influences which make a buyer want to pay more than intrinsic value?
1. Low Supply
2. Low Interest Rates
3. Low Unemployment Rates
4. Employers giving workers better raises
5. More Job Opportunities in the area
If buyers are willing to pay MORE than the home is actually worth intrinsically, this defines a new market value for the area which is based upon what I like to call avery shaky foundation.
So, my appeal to all Realtors and Buyers out there.....focus more on intrinsic value rather than market value (actual sales prices). If they are close to each other, you can feel safe with the investment. If however, they are far apart, buyer beware as your investment may not be as solid as you might think!
Thanks for reading!