What’s WHAT worth?
Whatever “IT” is . . . It’s worth what a Buyer is willing to pay.
Is that ALWAYS true?
In most things, YES!
In real estate . . . maybe not!
If a lender is going to assume the bulk of the financial risk by funding the purchase, that lender is going to require a 3rd party opinion of value (AKA an Appraisal).
The Appraiser’s gotta study the market and come to her own opinion of value based on recent sales, market conditions, and sometimes what she had for breakfast.
I say that last bit (breakfast) not as a criticism of appraisers, but as a tongue in cheek quip as to the fluidity of the market . . . determining value ain’t easy in today’s real estate market.
I believe many neighborhoods are experiencing “Zero Basis” market conditions.
“Zero Basis” means that there’s not enough consistent Historical data available to justify ANY value.
- There are either NO recent, comparable sales
- There are LOTS of sales, and the values are all over the board (often with range of +/- 20% or more).
The appraisers often have it easier than the REALTORS and Sellers, because the appraisers already KNOW what THIS Buyer is willing to pay and THIS Seller is willing to accept . . . That Purchase and Sale agreement provides at least a toe-hold of a basis . . . a toe-hold from which a case can be constructed to justify said value.
Generally, they have to resort to “Looking outside the traditional boundaries” . . .
Going farther back in time to find comparable sales . . .
or to other nearby neighborhoods . . .
or to distant neighborhoods which have similar houses (Often happens with Historic and/or Distinctive/unique Homes)
Many of the rules of determining value simply cannot apply in this market because if they were applied . . . no sales would happen . . . because the appraisers would have to tell the lenders:
“There’s ZERO BASIS for justifying this selling price!”
Lender declines the loan based on value, and the whole market is back to square 1.
Above, I mention that appraisers have it easier than REALTORS and Sellers . . . Here’s why:
The REALTORS and Sellers don’t have the benefit of having a real Buyer’s opinion of value before determining an initial listing price. Often it’s a guessing game . . . going with gut instinct based on what we “feel” like the market is doing.
The market is literally different from street to street. This block could be HOT and appreciating by leaps and bounds . . . while 1/2 mile down the road is tanking.
Why is it so difficult?
The whole economy is fluid. Some folks are prospering and “Movin’ on UP” while others are approaching Draconian destitution . . . and they might all live on the same block of the same street. This scenario creates a swirling stew of foreclosures, short sales, investor owned (for flip or rental), and single family premiere resales and custom rehabs or in-fill new construction.
We REALTORS must navigate these choppy waters behaving like ducks (Calm and unruffled on the surface while paddling feverishly underneath) . . . We must maintain our professional “I KNOW what I’m doing because I am a PROFESSIONAL” demeanor.
Our “Public” is looking to us every day for unflappable interpretations of real Estate Market Conditions . . . and asking the question:
“WHAT’S MY HOME WORTH?”
Your ability to handle this question with grace very well may define you in the eyes of your public.
We’re going to tackle this issue in next week’s Mastermind session. Wednesday June 27 from 10-12
If you’re in Middle Tennessee and would like to join us for some Spirited dialog and learning, just opt in by emailing me at firstname.lastname@example.org.
We’ll do some “CMA” Work (Comparable Market Analysis) and talk strategy on determining house values.
Are you in?
What will YOU say when your neighbor sees you in the grocery store and pops the value question?