Pricing your Southcentral Home
We recently got an email from Mark in Anchorage:
“One of those big online national real estate websites values my Anchorage home at $285,000. One of my neighbors, whose house is quite similar to mine, just sold his home for $325,000. I’m getting ready to put my home up for sale and I’m so confused over the whole process of figuring out how much it’s worth.
I know that my real estate agent will help me come up with a price, but what if his price is different from the previous two I mentioned? How will I know which of the three truly reflects the market value in my neighborhood? Just how does one figure out how much a home is worth?"
Good for Mark that he understands that his asking price for the home should reflect market value for his Anchorage neighborhood. What seems to be confusing him is the whole process of determining that value.
A home’s market value is the amount of money that a willing buyer pays a willing seller. The only way to know what buyers are actually paying for homes in a given market is by checking recent sales of homes that are similar to yours. Here are some examples of some similarities to look for when determining market value for your home:
1. Age
In a perfect world, the age of your home should match, or be within 3 years either side of the ages of the comparable properties. This isn’t always possible, however. Then, there is the method that professional appraisers use; it’s what they call “effective age.” This method takes into account the home’s chronological age and then adjusts it for the home’s condition. You’ll find an explanation of this process here, on pages 2 and 3.
2. Size
We look for recently sold homes that are of similar size to yours. Although square footage is typically the determining factor for this, the number of bedrooms and bathrooms plays a role as well. If we cannot find similarly sized homes to use as comparables, we’ll use larger and smaller and know that yours will be valued between those two.
3. Location
Location is everything in real estate so we try to choose comparable homes in the same general area as your home. If few sales have occurred there we’ll move out geographically, choosing neighborhoods as similar as possible to that of the subject home.
4. Upgrades, amenities and condition
This part of the process is probably the trickiest. Does your home have amenities, or lack amenities compared to other recent sales? Appraisers will deduct value from your home if other homes have upgrades and yours does not.
Remodeled homes are typically worth more than those that aren't. An updated kitchen or bath will add value over a home without those improvements. A well-maintained home has a higher value than a run-down home.
Once we’ve analyzed these four factors when comparing yours to the recent sold homes in your area, are able to determine market value, and an asking price, for your home.
Appraisers and the Appraisal
A big part of the home sale process is the appraisal. No matter how much you may want for your home, or how much a buyer is willing to pay for a home, in the end, it all comes down to the appraisal.
What is an Appraisal?
While a CMA helps us come up with a list price for your home, a real estate appraisal establishes the market value of a property for the lender. Since the home will be used as security for the buyer's loan the lender needs assurance that, should the buyer default on the loan, the lender can sell the home for the financed amount.
Once the home is in contract, the appraisal becomes what is known as a "contingency item." Most savvy buyer's agents will insert a clause into the contract, if it isn't already there, that the home must appraise for at least the loan amount. If it doesn't, the buyer has the choice of walking out on the sale, coming up with a larger down payment or renegotiating the price with the seller.
Here in Alaska, the appraisal is ordered by the buyer's lender, paid for by the seller (although this is negotiable), and performed and compiled by a licensed appraiser who will, first of all, inspect the home. From there, the process is quite similar to how we determine your list price. The appraiser will look at the recent sale data for comparable houses in the neighborhood.
Utilizing his or her training, experience, and judgment the appraiser will make adjustments to the sales prices of the comparable homes to arrive at a value for yours.
While most of the time the appraised value meets market value, there are times when it doesn’t. Since this is the only value the bank will accept - not the CMA and not what you want to get for the house - the appraisal is the final arbiter of what your home is worth.
This is important to understand when it’s time to price your home before putting it on the market. If the purchase agreement has a sales price over that of the appraised value, the contract will need to be renegotiated to make sure the sale will go through.
Feel free to call us with questions about how home prices are determined in Southcentral.
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