Wonder what your house or a house you are looking to buy is truly worth? When looking to sell or buy a house, there are three values for any listed home: What the seller thinks their home is worth, what the buyer believes the home to be worth, and what a professional appraiser thinks the home is truly worth. However, when looking to sell or buy a home, the most important aspect is to make sure these numbers are in sync.
The value of a home like the stock market or any other business dependent on socio-economic factors are subject to changes. And finding the right value of a home and the factors that determines them can help you make the right offer when looking to purchase or sell your house. In this article, you’ll learn more about home valuation, what determines a home value, and why you should use an agent over online algorithms.
What is a Home Market Value?
According to the National Residential Appraisal Institute, Market value is the likely price a property would bring in a fair sale on a competitive and open market assuming the buyer and seller are both motivated to close the deal and well-informed. It’s an amount informed by prices other buyers have recently paid for nearby, similar homes — called comparable homes.
Typically, comps or comparables are used for calculating the fair market value of a home, determining a reasonable listing price, and offer price. When calculating a home fair market value, five key comps are generally used. They include:
- Timeline: It is common for comps to include an analysis of home sold in a specific neighborhood in the last 5 to 6 months.
- Location: Comps used in determining a home market value must be focused on a specific neighborhood and in proximity to the home being analyzed. Typically, in an urban area, the comps are usually within a mile of the home.
- Home Size: The comps used must have similar number of rooms, stories, and square footages. Also, they must feature similar basement type and garage size.
- Features: Homes used in comparison should have similar amenities and finishing
- Age: The homes being compared must be of the same age range. Remember that newer homes have newer finishing, layout, and amenities which may increase their value.
Why Should You Use an Agent Vs Online Algorithm?
With the introduction of automated valuation models (AVM) or algorithm, getting the necessary property sales data has become a work in the park. But if you are like most home buyers or home owners, you may be wondering whether to stick with a home appraiser or go with online algorithm websites like Zestimate. This section clears the air on why you should use an appraisal agent over online algorithm when appraising a home.
- Better Appraisal Judgement
From market rents, to differences in sale timelines, to investment parameters, appraisers make lots of opinions throughout a typical home valuation process. While many of these decisions are based on hard data, sometimes they can be influenced by nuances which isn’t common with online algorithm. In general, human appraiser in valuating a property will more likely take into consideration several important factors that an AVM has no ability to detect.
- Evaluates the Intangibles
While AVMs are great at pulling property sales data from multiple sources within few seconds, it lacks the ability to analyze the intangibles as common with a traditional home appraisal process. An online home estimator like Zestimate cannot see physical things like wiring that is not up to code, broken roof, or poorly constructed home foundation that can negatively impact the value of a house.
However, an appraiser will account for these factors and more. While it common for an appraisal to cost more and take longer time, you are sure of getting a better picture of your home value.
- More Acceptable by Lenders
While AVM estimates are gradually receiving the attention of the Federal Housing Administration (FHA), they are still not accepted by all lenders in a typical mortgage process. This is mainly due to the errors in their data and lack of comprehensive detailing of relevant property sales data. More lenders are beginning to see the importance of working with a traditional appraisal over online algorithm.
The Bottomline
Finding the right value for your home is very important if you want to sell your home faster and for the right price. While the use of AVM estimates is here to stay in the world of mortgage lending, it doesn’t substitute the place of a human appraiser. If you are first-time home buyer or seller, it is advisable that you discuss your concerns with your local real estate agent for better assistance.
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