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Friday, August 17, 2012

Understanding “Market Value” In Real Estate

Whenever I speak with a home seller, one of the first things they want to know is the market value of their home.

In order for them to understand how we arrive at the market value, I try to get them to think like a homebuyer.

There are more sellers than buyers in this market, so if you want to sell a home, you better understand exactly what your buyer is going to be doing and seeing when they make the buying decision.

The three mistakes to avoid when determining the market value of your home relate to the emotional posture of most sellers. They come up with reasons why they think their home has a certain value, but they do not consider that those reasons might not be as relevant to the prospective buyers of their home.

East India Dock Road entrance to the market and the Lansbury Estate, an early post-war iniative in social housing following the destruction of the area
(Photo credit: Wikipedia)
Price Versus Market Value

The first mistake that sellers make when determining the market value of their home is by looking at the asking prices of other homes. The price that a seller sets on a home is completely up to them. Nobody can stop you from asking any price you want when you sell a home, and most likely there is a real estate agent out there that will put it on the market for you.

If your neighbors are asking a price that they will never get, using their asking price to determine your market value is not going to work.

Cost Versus Market Value

Another mistake I often see is when seller’s want to use replacement cost to determine the market value of their home. While this certainly makes sense at first, you really need to stand in the shoes of your prospective homebuyer. If another home (similar to yours) can be purchased for less money, why would cost matter to the buyer?

We are in a market where foreclosures and shorts sales are streaming into the market at a high rate, and the abundance of supply means that values are going to continue to decline. Replacement cost simply is not going to be a factor for many more years, and if you rely upon it as a seller, don’t expect to be moving any time soon.

Value Versus Market Value

There is a absolute top price that somebody might pay for your home, and we call that its value. But considering the plethora of homes for sale in Tallahassee, it is highly risky putting your home on the market at this highest value. Why? Because home values are declining. If you don’t sell your home in the first few months, then you have to lower your asking price to a point even lower than what you could have received when you first entered the market.

Market Value

Market value is an amount that attracts multiple buyers to your home. I like to get sellers to understand that real estate is always a sellers market, because it is the seller that determines where a home will be positioned in the market. If you want to know the market value of your home, just drop me a note and we can schedule a time to discuss the different price points that you could consider if you choose to sell your home.

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