What is the valuation of your home?
You are probably aware that the Greater Philly and New Jersey housing market had been doing well, but do you know how much your house is worth in today’s market? When we often met with clients, like lots of people, they have gone online prior to our meeting and looked up the value of their home, or so they thought; right? Does this describe you?
It’s pretty easy. Google your address and like magic, up pops several online sites that will provide information on your house, such as number of bedrooms and bathroom and square footage. Sometimes they even show a picture of your home and sometimes they even will show an estimated valuation price of what your home may be worth. For a lot of people they take this number as gospel and look to us for verification of this number. Sometimes the estimated valuation number is close to the correct value of their home, but other times it’s way off. Did you know that the CEO of one of the largest online home sites sold his home a while back, and that he sold it for 40% less than what his own site said the home was worth?
This is part of an on-going best in class series of real estate articles by Nick Santoro and Joe Santoro of Personal Property Managers who service Pennsylvania and New Jersey. Personal Property Managers is a home sale specialist maximizing the sales value of our clients property, and also provides home content downsizing, senior transition services, property management and estate sales. These tips and insights are especially important and true in the environment we are in today, with the global economy turned upside down, massive job losses, and the need for extreme social distancing due to the Corona Virus, which causes the COVID-19 disease.
These online sites have many different names for their rough home valuations. Did you know that they often fail to take into consideration floor plans, swimming pools, frontage, interior and exterior updates and upgrades? Please do not make the mistake of hitting the market without an expert valuation from a local Realtor who takes everything into account when pricing your home for sale.
Nick Santoro says that when you value homes, there are three methods that you should use to determine a property’s value. Whether or not you plan to sell your home any time soon, knowing the value of your home is often the starting point for making wise financial decisions.
Another factor that is very important to consider is that almost all buyers will need some form of financing such as a mortgage. Why is this important? Because a buyers mortgage lender will conduct a detailed comparative market analysis too. Even if there is an agreement between buyer and seller, if the buyers mortgage lenders comes up with a value that is less. then they will not lend the buyer the money to purchase the property. We are sharing with you the top 3 methods that they use when determining a homes valuation and thus the amount of mortgage that they will provide and approve. They are:
1. The Cost Approach
The cost approach works by analyzing what it would cost to build the
property in today’s market, adding the current value of the
parcel of land on which it sits and then subtracting a factor for
obsolescence or depreciation. This method is rarely impactful as resale
homes are heavily influenced by supply and demand. If there are too
many homes for sale, cost will have no bearing on valuations, as sellers
will have to compete to get them sold. Fortunately, the opposite is
true as well. If there are too few homes on the market, buyers very
well might have to pay a premium to have a seller part with her property.
2. The Income Approach
The income approach is typically used with investment properties.
The net income a property generates (net operating income) is used
to derive a market value based on a multiple of the property’s
annual income. Generally speaking, the more income a property generates,
the more it is worth.
3. The Sales Comparison Approach
The sales comparison approach, also known as the market approach,
works by looking at the supply and demand for similar homes. We look
at similar homes that are for sale, the selling prices of similar
properties that have recently changed hands, and how many similar
homes that have failed to sell recently.
It is important to look at homes on an apples to apples comparison. We are talking about comparing the number of bedrooms, number of bathrooms, home style, square footage, lot size, school district, location, updates and upgrades, the layout of the home, curb appeal, roof, HVAC systems, overall condition, geographic proximity to your home / subject property. Also look at what may need to be done to the property to bring it up to current market demand conditions, and the cost to do so.
Additionally, many clients look at the price that other homes are listed for in their area. This is a mistake. This may be fine for an overall feel, but the real measure is looking at what similar homes have actually sold for. This is what your lenders will be looking at. It often does not matter what houses are listed for, what really matters is what similar houses have sold for. As licensed Realtors, we can share this analysis with you by conducting something called a Comparative Market Analysis or CMA.
The prices of homes are then adjusted upwards or downwards based upon how they compare with other properties that have sold, are listed and the overall condition of the property in comparison to other like properties; then, by averaging the prices of the comparable properties, an appropriate value is determined for the subject property.
The Best Method
To find the real value of your home, you should use all three approaches,
but heavily weigh the findings from the sales comparison approach and what homes actually sold for, not what they were listed for.
Remember, all markets are subject to supply and demand, and if more supply is needed, then the cost of creating additional supply will affect the values of the supply that is already in the market, over the long run.
Following the methods above will help you determine an accurate value for your home. Then, with an understanding of current market factors, you can develop a well-informed strategy regarding when to sell and buy a home.
If you need help coming up with a plan or determining your home’s value, please give us a call or look us up on the net at www.personalpropertymanagers.com We are home sale specialists. We not only can help you sell your property at the best possible price, but we also offer a best in class seller acceleration program to help get your home ready for sale by downsizing and de-cluttering it and helping to liquidate the contents. For a truly one call does it all solution, contact us today for a free evaluation.
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For more information on real estate or home downsizing please contact Nick Santoro or Joe Santoro of Personal Property Managers at 215-485-9272 or 908-368-1909. Personal Property Managers specializes in helping home owners transition from their home of many years into a new community. Personal Property Managers services Pennsylvania and New Jersey and offers downsizing services, estate sales services, home staging, discount full service real estate services via its association with EveryHome Realty. Learn more about Personal Property Managers from our recent News Stories.
