What is my house worth?
I get this question almost every time my wife and I see our friends. Everybody wants a quick answer and when I start by saying, “the answer is way more difficult than the question” they say that I am an appraiser and I should be able to tell them. Yes, after some time-consuming research I can tell them a lot about the value of their house.
Most people have an idea about how much their home is worth. The value of a house depends first and foremost on location. “Location, Location, Location” is the Real Estate motto.
I’ll tell you from my perspective what I do when I want to figure out the market value of my property (referred to as the “subject” being appraised). I start looking for comparable properties that are similar or as close as possible to the ones in my neighborhood.
Location is important in many ways. Let’s pretend that the house across the street sold for an amount that makes me very happy and I think that my house value is at least the same. There are very subtle differences, but the house across the street belongs to a different school district. Upon looking at similar houses in that school district I notice that a typical buyer would pay 10% more only to be able to send their children there.
Three houses sold on my street over the past year, but none have my home’s improvements. That might be true, but I should see if the houses are comparable to mine:
- Do they share the same style? (colonial, bungalow, ranch, split-level, etc.)
- Do they have similar gross living area? (a finished basement is not part of living area!)
- Do they have the same bedroom count?
- and so on…
Overall, there are a lot of factors that affect the value of my house:
- Physical characteristics
- And finally, supply and demand
The process of deriving the market value of a house is complex and it requires experience, knowledge of appraisal techniques, and “geographical competency”. One can assume that I will not appraise a property 500 miles away, unless I appraised there before and know that area just as well.
Sometimes I look on the internet because there are several sites that provide an “estimated value” of my property. What I have noticed is that this value is sometimes close to the market value but sometimes it is very different. This mostly depends on the market configuration (how homogeneous the market is). In a homogeneous market a statistical model will work with relative accuracy, but if we have a foreclosed properties, vacant homes, or subdivisions with houses that have significantly different characteristics, the value provided by the Internet is likely to be different.
Now you know why “what is my house worth” is not such an easy question to be answered.