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Understanding the Market Value of your Home

gray home

In many areas of our country, the market has turned in favor of the purchaser, leaving sellers with the stress of "marketing" their home. There are several facets of marketing to include presentation, timing and advertising. All of these are important, but without question -- and don't let anyone convince you to the contrary -- the most important aspect of marketing your home, is pricing it at or near market value.

We will assume that you have carefully interviewed and selected your realtor, and have thoughtfully weighed the decision to sell or rent your home. By the way, you may want to review the Seller's Checklist prior to beginning this process.

To appropriately price your home and thus sell it in an acceptable time frame, it is critical to get past what is generally, and understandably, the emotional issue of how much your home is worth. After all, we buy our homes because we like them, we decorate them to suit our tastes, and we raise our children in them. Our homes truly represent more than the standard commodity.

However, the faster sellers get past these issues and focus on the "market value," the sooner they can move on to your next duty station, and the next phase of your life. And in most cases, sellers are financially ahead by pricing it correctly the first time, and not eating the mortgage payment (not to mention the stress) for several months until they discover the market value the hard way.

So before we define market value it is helpful to specify what it isn't. Market value is NOT:

  • The assessed value for tax purposes
  • How much you paid for your home
  • How much you owe for your home
  • How much you put into your home, monetarily and / or emotionally
  • How much cash you need from your home
  • The sales price of your neighbor's home
  • The appraised value of your home when you refinanced last year

Market value for our purposes is: "the price a home will command from a rational purchaser under normal conditions." It is basic supply and demand economics. As home inventories increase, home prices will fall. If home inventories decrease, home prices will climb.

Your carefully chosen realtor should go through several steps to help you determine "a range" for your market value. By the way, probably the hardest thing for a realtor to do is to tell a client that their home is not worth as much monetarily as the client believes. Good realtors will not shy away from this uncomfortable responsibility, even if it costs them the listing. But they should be able to defend their opinion with facts and analysis.

In most cases, through their Multiple Listing Service and specialized software, your realtor can compare your home to similar model homes in similar local developments that sold recently, are active listings, or under contract. They can then fine-tune the analysis with the various options and features in the homes. When this information is presented in a tabular format that summarizes the primary features such as lot size, age, bedrooms, baths, etc., a price range becomes evident.

The more recent and comparable homes in the analysis, the better. Note that the review of the sold comparables -- where you can compare the list price with the final sales price -- will tell you more about the market price. The active listing comparables tell you a little about market price, but will paint a very clear picture of the competition. Be certain that smart buyers will consider the competition. The combination of the two analyses should help you to price your home competitively to sell!

It should be noted that in some cases comparables are not easily found. For instance if you are selling your 30-year-old contemporary home on three acres in an area that is primarily five-year-old colonials in defined subdivisions, your analysis may not be as statistically useful. However, any comparisons and all analysis will be better than a guess!

Finally, your home is your investment. Your realtor should provide this information willingly and be prepared to defend their opinion of a price range.

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