How To Determine What A House Is Really Worth
When trying to price a home there are three different values that different parties have, what the seller thinks its worth, what the buyer thinks its worth and what a professional appraiser will think its worth. The foundation to a smooth and successful home sale is having these numbers align.
What are Comps?
This is a term that you will hear many times from you agent and the appraiser. A “comp” is a comparable home that has been sold nearby. Buyers and agents should do their research of the area, and the agent should help you compare houses of similar size, schools, and amenities that have sold within the past six months. One of the most useful items of information is the price per square foot. This is a very good apples-to-apples comparison, particularly between two homes that are otherwise extremely similar. In some areas with fewer home sales you can go back a few extra months but sales much older than that won’t produce accurate comps. Some lenders are picky when it comes to appraisal time and will only look at the past three months of sales
Some things are just a matter of choice. When you go into a home you will know if it is the right home for you and will have an idea if this home makes sense or not. If the home is a bit higher priced but it has the detached garage that you have been longing for it makes sense to go for it. Or if you love new carpeting, it’s worth it to pay a little more for a house with new, high-end wall-to-wall. But if you’re going to tear it out to install hardwoods, it’s not. There are a lot of things to think about when it comes to what a home is worth to you but in the end you have to be practical and really evaluate your needs and wants.
What’s it going to be worth to someone else?
Even if this is your new forever home, you always need to think about the future and remember circumstances do sometimes change. You may want to or have to sell your home at some point and you need to be able to get out of it what you bought it for. If you splurge for a higher priced home because the amenities are just what you are looking for, you have to keep in mind that not everyone has the same wants and needs as you. So finding a future buyer that has these same wants and needs as you may be hard. What is good looking and desireable to you may not be so for others.
Now Appraisal Time
If you’ve fallen in love with a house and find yourself willing to pay a premium just to get it, you could still have a problem. Your mortgage lender will pay a professional appraiser to study comps and evaluate the home to come up with a value. Problems can arise if the appraiser comes in below the sales price you and the seller agree to. At this point the buyers either need to cough up more cash upfront or renegotiate the price with the seller. Since the lender is using the home as security, they need to know it’s actually worth what you’re buying it for. That provides both another limit and a motivation to both you and the seller to not go too far off the deep end with pricing and offers.