Ever wonder why the estimated value you see online for your home doesn’t match what a real estate professional told you it’s worth? Or why there’s a disparity between what the online estimated value is compared to what price the seller is asking for the property?
This is because the estimated value displayed on real estate sites usually uses a formula to compute the value. That doesn’t mean it’s bad, or even necessarily wrong. But it’s important to understand that it is different that a real estate professional performing a comparative market analysis (CMA). This is a market value of what I think your house could sell for in the current market.
Our process uses some of the same information including recent sales, number of bedrooms, etc. But we are able to include the human factor. We can look at a house subjectively, like potential buyers will.
The Relative Approach
In the North Country, we have a few subdivisions with similar style houses, built around the same time, with the same features and lot sizes. Likely their online estimated values are the most accurate because taking an average of sale prices would work as long as you have enough data (recently closed houses).
However, many of the communities that I serve have more unique properties where taking a straight average of sales nearby would not truly reflect what I buyer would pay (fair market value).
A More Comprehensive Breakdown
This is why my process is more comprehensive. I start by viewing the home. It’s important to be in the space, not just see photos or have a phone conversation. Outside, I look to see how well kept the neighbors yards are, if there’s anything close by that buyers might not like, such as a loud business or a train. Of course, I also look for things that buyers may love such as great sidewalks, a community park or a private backyard. Inside, I look for natural light, if it’s cosmetically pleasing, if the layout is what buyers are looking for or if there’s something awkward regarding the flow of the house.
Real estate is a combination of art and science. This is definitely where the art comes in. My goal is to choose my comparable sales based on how I think buyers will choose this house. Who is our best buyer pool? For many houses, buyers will choose it because it’s in a certain school district with a certain number of bedrooms. So that is how I filter my search for recent sales, currently available properties and pending properties.
But a home on 10 acres of privacy is likely to be sought after by buyers that are specifically looking for a larger amount of land. Now certainly someone who just needs to be in that school district could still buy it even if they don’t care about the land, but the lot size is likely the feature that will drive someone to pay the most for that house. In this situation, I may try to find comparable sales within 20 miles that have 5-20 acres.
How Acreage Factors In
Land is one feature that is not factored into the algorithm in estimated value online. This is one reason why trying to determine value with price per square foot doesn’t work in our communities. For example, you have a 2,000 sq ft house on a quarter acre lot listed for $250,000 and a 2,000 sq ft house on a 5 acre lot with a view of the lake listed for $500,000. Looking at only price/sq ft would have you thinking the second property was way overpriced. The reality is, that the listing agent on the second home, recognized that it is worth more to a buyer specifically looking for privacy and/or a view. The price reflects the whole package. Price per square foot does not.
True market value is determined by what a ready, willing and able buyer will pay in the current market. My job is to best predict what that is is. This comes from years of experiencing buyer behavior firsthand and knowledge of what has sold and what is currently available for sale.
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