What is the "Value" of a property? What does "Value" even mean?

What is the "Value" of a property?  What does "Value" even mean?

We deal with property values every day.  In many ways.

Some of them include:

• When you're getting ready to list your property for sale - we look at comparable sales in your area, or "comps" as we refer to them.
• When you're purchasing a home and using a loan for the purchase, your lender utilizes an appraisal to determine the current value of the property, as well as security of their investment.  And believe it or not, how much they can recover should you default on the loan.
• When obtaining different kinds of insurance, the policy provider needs to know what kind of premium to issue based on their perceived "value", or perhaps in their case, replacement cost of the property.
• When obtaining a home equity line of credit - the lender needs to know how much they can safely leverage, should you default on the line of credit.
• In various legal situations such as divorce, probate, auctions, foreclosures and other judicial proceedings requiring the liquidation of property, resulting in how much the intended beneficiaries can anticipate receiving after the sale.
• Miscellaneous credit lending situations where the issuer of the credit towards purchasing their product depends on the amount of net equity in the property.

"Value" in the different scenarios above will each have it's own scientific approach towards determing what the property is worth, mostly centering around however their particular agenda is skewed.

But what truly is "Value"?  What does "Value" really mean?

Well, the term "Value" is basically centered around the perception of a BUYER.  Many times, we use the phrases "that's a good value", or "value for your money", etc.  

So we can agree upon the premise that the term "value" is used in terms of the perception of a buyer.

With that being said, when it comes to real estate, the most important thing I can emphasize is that value is determined by WHAT A BUYER IS WILLING TO PAY FOR IT IN THE GIVEN MARKET.

We can run "comps" (aka comparable sales) all day long and parade around the streets claiming a value of a property, citing these "comps".

But "comps" are not the where-for-all as to what a buyer is willing to pay for it in the current market.  Are "comps" a likely indicator?  Maybe.  Do they help determine what price you should list your property for?  Sure, I'll buy that (pun intended).

But the BEST advice I can give a seller is that "comps" do not determine what an able buyer is willing to pay for the property.  And what a buyer is willing to pay for a property has MANY possible variables, including:

• The location that is important to them for THEIR personal reasons - close to work, close to place of worship, close to certain schools or within a certain school district, utility expense in that region, amenities in that area, climate preferences, air quality, fire and other natural catastrophe safety, etc.
• 
  The style and aesthetics of the property that they have an affinity for
• 
  Sentimental and/or emotional reasons
• 
  In the case of developers and/or flippers, what net proceeds they can expect after renovating the property and listing it for sale

Honestly, the list of reasons for perceived value can go on and on due to varying demographics.

What is my point? (Get to the point, Ralph, I only have so much time in the day! LOL)

My point is:  We can do all the research and due diligence in the world to understand current value of a property, and it certainly is a necessary and important tool, but ALWAYS be prepared to embrace the intrinsic value of what an able buyer is willing to pay for it.

Example:  You and your realtor run comps for your property to prepare to list it for sale.  They are all recent and viable comps.  You receive three offers on the property, all under asking. 

Is it a conspiracy? 
Are they all "wrong"? 
Did you over-value the list price?

You can't really claim, for the most part, that any of these situations are true.  All you can do is ANTICIPATE how the market is going to speak to you in that particular time and space.

You never know - there could be certain socio-political issues going on in your city, state, or even at the national level that can certainly skew what a buyer is willing to pay for your property, regardless of where the "comps" are.

If you truly want to be successful as a seller, beneficiary, executive trustee, Realtor, or whatever position you're in with relation to a property sale, and not just another statistic of an unsuccessful sale, you must be willing to embrace finding, hearing, and taking action on the voice of the market at that space and time.

So don't take "comps" as the Holy Grail, and LISTEN!

Ralph Gorgoglione - Broker / Realtor

Metro Life Homes  / BRE #02009317
(310) 497-9407 / (800) 591-6121 

Web:  metrolifehomes.net