QUESTION OF THE DAY-WHAT IS “VALUE” IN TODAY’S HOME SELLING MARKET?????
Below are my thoughts on a “Broker’s Opinion of Value” letter which was just completed for clients who are not planning on placing their home on the market but do need a realistic estimate of current value for personal reasons.
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The point being that no matter how I slice and dice it there are very few comparable sales-just 2- for that particular property even within a fairly large radius. Hence depending on condition, quality of finish work and how dated it is I can come up with anywhere from around $240,000 if I base the price on what is for sale-not sold, but what is available if someone wants a comparable home currently on the market- down to maybe even as low as $175,000 based on what has actually sold.
Here are the problems that home sellers and buyers are facing today.
It’s a dilemma for appraisers right now. They may omit the distress sales-foreclosures, short sales etc- in their opinions of value. In other words they can ignore those types of properties and use just “arms length” transactions in their appraisals. Obviously this leads to a higher value than if the distress sales were included. Unfortunately the pendulum has swung so far to the conservative side that many are including the distress sales as comparable sales which of course drags down values across the board. The consequence is that even though a home may be considered to be fairly priced at the agreed upon sales price it might not appraise high enough for loan purposes and the sale will fall through.
The other harm to non distress sellers comes from a prospective buyer looking at neighborhood sales and seeing the sales prices for distress homes which are way under what would be considered a reasonable market value. If the buyer uses these sales as a basis for making offers then that buyer would be expecting to purchase the non distress homes for similar prices. But what the buyer does not know is what the condition was of the distress homes. The distress sales can make a wrecked distressed home appear to be comparable to a market ready well cared for home. But it can miss the damage done to this distressed home-wiring torn out, walls kicked in, cement down the toilet, cabinets ripped out etc. What appears to be a bargain can become a loss to the buyer after the work necessary to bring the home to real market salable condition is completed. And once the work is completed the home will probably have to be priced comparably to the well cared for home if the distressed property buyer is to recoup his or her investment. Taking this into account the question becomes one of what the real value of the home was or is. Is it the distressed price paid by the buyer or is it the value once the necessary repairs are completed? So when looking at the prices at which homes were sold or to price homes about to go on the market it is not enough just to look at recent sales prices. One must also research the history of each of the sales.
The other problem can be timing. It is possible that a neighborhood will have a period of several distress sales and then there will be none available. So the appraisals show the neighborhood as being a very price depressed area. Yet all the currently available homes are priced based on a normal market. This leads a prospective buyer to believe that he or she can purchase a home with a real value of $200,000 for only, let’s say $140,000. And that buyer is surprised when the owner says “go away, and don’t come back”.
So value today, in all price ranges, is highly subjective and is a moving target. And this is why that unless you are highly knowledgeable in the real estate market it is advisable to have someone to turn to for counseling and advice. We provide that on a friendly, confidential and no obligation basis.
