Wednesday, March 26, 2008

Selling my house...What is the true value of my home?

There are 3 ways to estimate the value of your home. OH, you did not know it was an estimate?
To be truthful, all appraisals are estimates, just like that one you got on your mother's silver serving tray. They can do an appraisal for sale, for replacement, or for insurance. And a home is similar.

#1. Have any silver trays like this sold? There were some at the sale at xyz auction 6 months ago.

#2. What would it cost to replace this tray? It would take a craftsman today about x hours and x material to make a tray of similar quality and design.

#3. If I were to rent this tray from a caterer for a wedding, how much would it cost me per day?

The Silver Tray/Antiques appraiser has to consider these question but also has to know where to go to get the answers. A LOCAL Realtor can be just as much a neophite as an appraiser who did not attend the sale above. What matters is experience and market knowledge, not whether he has ever seen a tray just like this one or a house just like yours.

Understand similar questions are asked when an appraisal of a home is done. Now imagine you are getting a divorce and you want to stay in the house, how much do you want the person leaving to pay you for their share?

What if there are 4 children all from out of town and the estate needs to be liquidated, so taxes do not mount up? What would the value be then?

What if you are facing a foreclosure? Death of a spouse? Transfer? Each and everyone of these situations will affect the appraiser's opinion of value in different ways and they are hired with specific instructions to reflect the same.

Here are the common methods of valuation for real estate appraisals:

INCOME APPROACH: Value of the income generated by the property. Generally this applies only to commercial buildings and the debt service required to pay off the debt. Residential income properties may also be subjected to this kind of scrutiny and units of comparable size and rental history will be sought out to justify pricing and value. A gross Rent Multiplier and other factors are often used. Not a favored method by most residential appraisers.

REPLACEMENT COST APPROACH: Cost of replacement or as we say sticks and bricks. With today's production builders and the economies of scale they can achieve, this too can be very difficult for an appraiser or a real estate broker as today's costs would be greatly affected by access and materials no longer available. Most appraisers will use this as a last resort to establish a value.

COMPARABLE SALES APPROACH: The comparable sale approach is by far the easiest and most accurate of all of the valuation techniques. In essence if you can find the same model house in the same neighborhood that has sold in the last 6 months, that should be a good indication of the value of the subject home. Right away most folks will note that the other home had a less desirable finish in the basement, or no alarm system, etc, however the market value by the appraiser will adjust for all of these according to historical and empirical data.
While an appraiser will look at sales HISTORY the Realtor is charged with interpreting the current market trends. If it is a declining market, the client must be so advised. Appreciating values also must be interpreted.

So what is the REAL Value of anything? "What a willing buyer and a willing seller agree to" is the traditional definition of value. If I want to sell my $6000 silver tray for $3000 to an arms length Buyer it is now a $3000 tray. Likewise, a buyer in your neighborhood may only be willing to pay his opinion of "FAIR MARKET VALUE" and certainly the banks and mortgage companies in today's climate will agree. Our job is to interpret those sales and extrapolate the data so it reflects an accurate value of your home.

And remember, there are always 3 prices for every home:

What you want.
What you ask.
What you get.
Learn more at

BTW: Did you know Realtors are charged with providing accurate evaluations that do not mis-lead the client according to the National Association of Realtors Code of Ethics?

Is this kind of insight and experience valuable to you or your friends? Then put my 23 years of experience to work for you, learning about your new home town! Whether it is Highlands Ranch, Lone Tree, Littleton, Castle Rock, Centennial, Englewood, Parker, Elizabeth, Larkspur, Franktown, Kiowa, or anywhere in metro Denver Colorado, we offer real estate advice, properties for sale, multiple listing service, property listings, mls, all available at Drop me a note to

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