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It's important for sellers to have an expert opinion about their home's value before going ahead with a certain asking price. One of the best ways to do this is through comparative home sales — known as comps — and appraisals.
What are comps?
Unlike tax assessment values or a replacement value that an insurance company would calculate, comps relate directly to current market conditions.
Comps are records stored in real estate databases, describing homes that have sold in an immediate neighborhood or similar nearby area. They're what most real estate agents and appraisers use to value homes. The timeframe of the comps will vary according to the market.
Comps match certain characteristics of the home you're valuing. For example:
- Location — preferably within a six-block radius
- Size — square footage, lot size including the yard, and number of rooms (especially bedrooms and baths)
- Age — the years built and renovated
- Condition — whether the home is in mint condition, is a fixer-upper, or needs complete rebuilding
- Features — the details and amenities of the home, such as a remodeled kitchen or a great view
How to work with the comps you find
In a perfect world, you would find three homes within a three-block radius that have sold in the past two months and compare on all five characteristics. But, in fact, since nearly all homes are unique, you won't find any exact comparables.
Instead, you'll need to examine near comparables and make additions or subtractions to their selling prices to come up with a value for the home you have in mind. Start by listing all the features that make the home in question more or less valuable than the comp home, and estimate numeric values for each feature. Use these figures to calculate an adjusted home value.
Keep in mind that home improvements and unique features do not always add value. If you're unsure what numerical adjustments to make to comps, a real estate professional can provide this service.
Where can I get comps?
Comps are usually available free of charge from local real estate agents or even online. Sellers can easily obtain a full Comparative Market Analysis (CMA) report from a real estate agent that analyzes comps and recommends a home value.
If comps aren't adequate, consider an appraisal
There are a few unusual situations where comps or a CMA may not be adequate for a seller to confidently set a home's value. Suppose, for example:
- There are no comps. Perhaps no home in the neighborhood has gone up for sale in years. Or maybe the home is one-of-a-kind - a bungalow amongst mansions, or a Victorian on a street of ranch homes.
The home's value is disputed. Sometimes co-owners disagree over their home's value when they are setting a price. Or buyers and sellers interpret comps radically differently during
- negotiation. As another opinion, a home appraisal can settle these sorts of disputes.
In such cases, a seller might consider ordering a home appraisal, which will generally cost $250 to $300.
What happens during an appraisal?
A licensed appraiser inspects the home, assessing square footage, condition, and features. The appraiser usually analyzes comparable home sales and, after factoring in knowledge of the immediate market, assigns a value to the home.
It's important to realize that appraisals can differ. However, since most states regulate appraisers and specific methods are followed to arrive at a market value, an appraisal is a more thorough analysis than a CMA. Please check with your legal advisor regarding whether you must disclose to the buyer that an appraisal report for your home has been obtained.
http://www.wellsfargo.com/home_center/selling/articles/cis_hc_atcl_setprice. |
