By Chip Collins
“What’s my home worth?” ranks among the top questions homeowners have, especially as they get closer to possibly selling.
Here’s what you need to consider when imagining what your home might be worth. Automated Valuation Models (AVM’s) are a data-based tool real estate sites use to offer estimated property value. Zillow’s Zestimate is among the most widely known, as this leading data-aggregate site is very popular. These online computer models “crunch numbers” in a series of algorithms that attempt to spit out a current suggestion of your home’s value. These models “learn” and adjust every time there is a new transaction (or data-point) in your market area. AVM’s, however, are not completely reliable because they are subject to the computer adage “garbage in, garbage out,” meaning if the information put into the algorithm calculator is inaccurate then so will be the output on the estimate of your home’s value. The good news is that homeowners can “claim” their home on Zillow in an effort to ensure the accuracy of the information on their home. This doesn’t change the fact, though, that AVMs don’t have the benefit of walking through your home to understand it’s finishes, setting, view, condition, primary selling features, etc., and, as such, can only be so accurate in their estimation of your home’s value.
Appraisals are often viewed as the “written word” of property valuation as they are generated by licensed property appraisers in a regulated practice that is based on set practices and procedures. These principles, combined with the fact that appraisers generally visit the property in person as part of their assessment process, tend to suggest that a licensed appraisal is among the most reliable ways to determine market value. In fact, banks/lenders rely on this process to validate a sales price on a Contract of Sale. That said, different appraisers who perform an appraisal on the same property at the same time for different purposes (i.e., bank loan, estate planning, etc.) are almost certain to end up with different figures, suggesting that this well-respected approach is subject to variation as well.
Another common reference point on home value is what a homeowner’s insurance policy declares as its value. It’s fully understandable to want to connect “insured value” to “market value;” however, it’s rarely accurate. Insured value has to do with establishing how much insurance you carry on the home relative to what it would take to repair/rebuild the home in the event of an insurance loss. As such, the “value” relates to anticipated construction costs at the time of the loss and rebuild – not market value. The two can be close or they can be highly disparate… and, since your insurance policy doesn’t cover/insure land, the two figures are necessarily apples and oranges.
With the latest tax re-assessment in Beaufort County, most homeowners got a fresh sense of what the County feels their home is worth. Since the Assessor’s office has the charge of updating valuations county-wide, this process (just like AVM’s) relies mostly on computer models (as opposed to in-person inspections) to establish their best-guess at a property valuations. Property owners had the opportunity to appeal the proposed valuations – a process that entails providing more detailed information to the County for them to consider in their evaluation. Of course, most homeowners want their tax assessment valuation to be lower, while at the same time hoping their actual “market value” will be higher, thus creating a challenge in relying on tax valuation as the be-all, end-all of actual property value.
A real estate agent may enter the picture for homeowners who want to better understand the potential market value of their home. A knowledgeable agent familiar with recent listings and sales in the neighborhood, and with a sense of the “mood” of the overall market can bring some added clarity to property value. Such discussions between an owner and an agent can often consider AVM’s, the property tax valuation, and even the insured value, as they have some level of relevance, despite their also being flawed in their exact accuracy.
And, especially important in this “pricing strategy” discussion is the homeowner’s motivation to sell. Some homeowners place an emphasis on getting the absolute highest price while other homeowners are more focused on having a faster sale, thereby pricing the home to be appealing to a higher number of buyers that might produce the quickest sale with the “cleanest” terms.
This brings us to what is ultimately and necessarily the “final answer” to establishing a home’s true market value, namely a buyer. Well, actually and more specifically, a home’s true market value might best be described as a value at which a willing seller and a willing buyer, who are operating at an “arm’s length” in an open market environment establish as the final sales price of the home.
It’s understandable based on the above points of reference that any home’s “value” at any given time can vary based on the purpose of that valuation and/or the entity that is establishing the valuation. The important thing is to understand the difference between these valuations and to consider what you are aiming to glean as you seek to better understand your home’s value.