• Home Value Reports


 What is Your Home Worth? 

by Ken Tibesar

 

When you decide to sell your home, the most important first step is to verify a fair market value and decide on a list price.  The answer to a fair market value for your home is what the current housing market will support based on area home sales. 

A market analysis requires a comparison of your home to neighborhood homes that are similar in style, size and year built and features with adjustments for differences.  Then there are considerations on your home's condition in determining its value.  Have you maintained your home's integrity by making the necessary repairs and replacement?  Have you kept pace with modern styles with remodeling projects? 

What can you do to ensure your home is ready to attain the best price possible when the day comes to list it for sale?   

What Determines My Home's Value? 

Home values are determined by the textbook economic model of supply and demand.  Your home's value is based on what buyers have paid for a home like yours and how much the mortgage companies will finance for the buyer.  A Comparative Market Analysis is a process used to take a close look at homes that have recently (within the past 6 months) sold in your area, make adjustments for differences and determine your property's market value.  A CMA first takes into account your home's structure such as the size, style, age, number of bedrooms, baths, car/garage size, finished square feet, and the home's features (such as a family room, deck, pool, water front, one-level-living, etc.) as well as the land size and any outbuildings.  The age, size and style of your home are fixed but the investments in maintaining your home's integrity are based on your history of repairs, maintenance and updates?  Your home's integrity and style updates have a significant impact on your home's value and will make a considerable difference on how quickly your home sells and the price you receive.

Maintaining the Value of Your Home  

The first step in preparing your home to sell is to establish its integrity. As your home ages, you must continue to maintain, repair to replace essential functional items such as the roof, furnace and water heater. Once the integrity of your home is intact, you can then consider making your home more attractive with remodeling to keep pace with changing styles and decor. Remodeling your master bedroom before fixing the leaking roof is like having your car painted when the transmission is bad. It does not make sense to have a good looking car if it is not operational.

A term often used to define a home's condition is "move-in-ready" where the buyer will NOT have to make any improvements once they buy your home. If you have a "move-in-ready" home where you have invested in its integrity and updates, your home will be in more demand by a larger number of buyers. Specifics of what move-in ready entails and improvements a buyer considers necessary will vary but here are some basics:

  • Maintaining Value - A home with integrity requires reliable essentials such as a furnace, a/c, water heater, roof, appliances, electrical, plumbing, septic, sewer and a solid foundation.  Integrity also depends on good windows, doors, sub-flooring, insulation, and anything that is essential for a functional home.  All of these items need to be repaired or replaced as they age to maintain your home's value.  Home owners use the logic "I just spent $20,000 for new windows therefore my home is worth $20,000 more".  If you are replacing a worn out set of old windows that leak air adding expense to your heating bill, a replacement cost of $20,000 CANNOT be added to your home's value; it would be deducted.  Without the replacements and repairs the value of your home will decrease with age and in some cases, your home may not be approved for new buyer financing (e.g. FHA will not approve financing for a home that needs a new roof or furnace).   
  • "Dated: - When buyers are shopping for a home, they are looking for a property that is move-in-ready.  Without integrity they will eliminate your home but if it has outdated styles, it will then depend on the competition as well as the housing supply and demand.  With a "dated" home, buyers will look for your competition that has a modern kitchen and master bath.  If they cannot find anything they may come back to your home but with an offer far below the list price to compensate for their (over inflated) estimate of the cost of remodeling.  The kitchen is the number ONE area that needs attention followed by the master suite.  A kitchen does not always require granite counter tops but an open style with a breakfast bar and updated cabinets is part of the modern style.  The modern master bath has tile flooring and a bedroom with a walk-in closet. 
  • Expanding Your Market Share - The majority of buyers will use most of their available cash and credit to buy a home.  Any expenses that cannot be financed into the loan are not affordable for the new owners.  A home without integrity that has required repairs and replacements would have to be eliminated from the buyers list of homes.  A "dated" home does not have required expenses but will the owner accept living with the outdated styles or look for the competition that has the updates?  Owners of dated homes often say "We will let the next owners choose the updates they want".  You may be eliminating 50%+ of your potential buyers using this "let them decide" approach.  Sometimes sellers suggest an allowance for an entity but there are many complications in the finance tracking with new rules and regulations.  Investing in your home's integrity and remodeling your home is the best approach to attract a larger number of buyers and receive the best price possible for your home. 

Resources to Determine Your Home Value

Here is a list of home value resources that are often used by home owners. 

  • Tax assessed values - Tax assessed values are generated by computer models using area home values. Values are adjusted annually and driven by economic conditions.  Detailed factors used in analyzing a home’s value are not included in the tax assessed values.  
  •    Zillow - Zillow makes general assumptions on area homes.  This is a good source of a home value indicator but a value that should NOT be relied upon without validation. 
  • Homes Sold in Your Neighborhood - "The house down the street just sold for $260,000 so mine has to be worth ….".  If you do not have details to make the value adjustments,  you will not have a reliable or usable market value. 

If the above resources were a good indicator of your home values, mortgage companies and banks would not require buyers to spend $400+ on an appraisal. 

Home Improvements Return on Your Investment

When you spend money on updating your home, are you maintaining value or adding to the value?  There are many articles written about the ROI for your home’s improvements each with a very wide range of numbers.  To accurately calculate a ROI for each improvement, you would need data on the sale prices of your home with and without the improvements.  Then you have to decide which improvement was responsible for what portion of the sale increase.  Without this sale and allocation information, you would have to make a lot of assumptions to determine ROI percentages for each improvement.  I am sure the authors of the home improvement articles have their process and procedures for calculating home improvement ROI’s but with the wide range of numbers from different articles, you have to assume there is no standard methodology widely accpeted.   

Here is a list of recommended improvements to consider in preparing your home for listing.  They are listed in the order of priority with the top priority listed as #1.

1.      Clean/de-clutter - This is the best and most cost effective action to improve your home’s value.  There is a minimal dollar investment and a huge investment in your time and effort.  To get a fresh look at what needs to be completed, the help from an interior designer is recommended. 

2.      Lighten & Brighten - Another minimal $ investment task with lots of your labor and time. 

3.      Yard & curb appeal - Make sure you trim your trees and bushes and replace landscaping items as required.  Sidewalks and driveway should be in good repair as well as siding and gutters. 

4.      Staging - A interior decorator can provide a lot of help in this area. 

5.      Update Kitchen/bath - Now for capital investments that will cost you $1,000's.  There are ways to make your home look updated and not have to do full replacements.  Consider alternatives such as "skins" for cabinets, painting bath fixtures and new lighting fixtures.

6.      Paint Interior - This goes along with step 2 in assisting with the lighten & brighten tasks.

7.      Carpeting and flooring - This is a very important step in making improvements and will go a long way in selling your home quickly.

8.      Paint Exterior - Get rid of the chipped or peeling paint.  It is the buyer’s first impression so make sure they see how your home is well maintained.

Since we cannot rely on ROI percentages for your home’s improvements what can we conclude?  The following are conclusions based on the home sales history and buyers comments:

1.      With the above improvements, your home will sell faster, for more money and have a larger number of buyers ready to provide you with your asking price. 

2.      The best home showings are those when buyers begin to imagine themselves living in your home.  They talk about how their furniture will fit, how they would utilize rooms and assign bedrooms to the children. When a home lacks integrity or is dated, buyers will look for items that need repair, focus on upgrades required and begin to estimate the costs of remodeling.  When a showing turns to a “cost estimating” exercise versus buyers dreaming about how the home would fit their family, an offer to purchase the home is not likely.    

3.      Buyers are looking for a home and a deal but in what order?  If buyers are looking for a home as their priority, they will pay top dollar for something that fits their family and is move-in-ready.  If a buyer is looking for a deal as their priority, they will look for homes that need repairs, make a low offer, invest in the property and turn it a home.  Which buyer do you want to attract?

 

Selling a Home that is NOT Move-In-Ready

Here is a scenario of what often takes place when listing a home that is not move-in-ready: 

The home is listed at $199,900, a value determined by the owner using local home sales and a friend’s advice.  The Realtors recommended a lower list price to compensate for the lack of updates to which the seller says “let’s try $199,900 first”.  In the first 30+ days on the market there are numerous showings and one investor offer for $150,000.  After 45 days, the price is reduced to $175,000 with no acceptable offers.  When there are over 100 days on the market the owner gets anxious to “move on”, buyers see a “days-on-market” opportunity and an offer of $145,000 in successfully negotiated.

There are many variations of this scenario but it is an outcome that is repeated many times for homes that lack integrity and are dated.  If the owner had spent $20,000 to fix the kitchen, added new floor coverings, and had the 25 year old furnace replaced, the results would have been much different.

Two Reliable Resources for Your Home Value

The home sales industry depends on the following 2 reliable sources to determine home values.  With Supply and Demand as the driving force behind the value of your home, area home sales become the benchmark of your home’s value.  Using recent sales of homes like yours within the surrounding area (1+ mile radius) will establish your home’s value. 

·         Comparative Market Analysis – This is a report completed by a licensed Realtor that uses the same techniques as an appraiser with less broad analysis and based more on averages to generate a home value.  A set of homes similar to your home in the area are selected, adjustments made and then used by a Realtor to determine your home’s values.  This is used prior to listing a home and also used prior to a buyer making an offer.

·         Appraisals – An appraiser is the most accurate determination of home values and used by banks to determine a home’s value prior to loaning money to buyers.  An appraiser is a full time job that details many aspects of your home and compares them to comparable sales in the area.  Numerous adjustments are made comparing features, sizes, age, etc.  Additional adjustments are made if the roof needs repair, the furnace or water heater are more than 15 years old, there is worn floor coverings, poor windows, etc.  A 20+ page report is generated to support the appraisal findings and appraised home value. 

Your home is worth what the public will pay with considerations for what the public expects in the maintenance and repair of the structures and essential systems in your home.  Buyers are more likely to purchase a home for close to the list price that is move-in-ready with the modern styles and décor.  If you have not maintained your homes systems or remodeled your home to keep up with style changes, you can expect offers that are far below your listed price.  Up-front investments prior to listing your home are very often a very good investment.

 


Coldwell Banker Burnet - Ken Tibesar - 576 Bielenberg Drive Ste 100 - Woodbury, MN 55125
Phone: 651-263-0522   Email: kgtibesar@cbburnet.com

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