What is the value of your home? This is probably the first question on every homeowner’s mind when they think about selling. Understanding what the value of your home is and how it can be determined is a key step for you as you make the decision to sell your home. From listing your home to the moment you sell, you will talk a lot about the price and value of your home. As an agent, we will help guide you on pricing based on the CMA, or comparative market analysis. Once under contract, a buyer’s lender will order an appraisal, in order to ensure they are lending money based on a solid value for the home. While the goal is to have these numbers be the same or quite close, it doesn’t always happen that way. Understanding how each arrives at the value of your home can help you get your home sold.
The CMA
You want to list your home for sale, so you call a Realtor. One of the first things the agent will do is run a CMA on your property to get a better understanding of how they can help you sell. The CMA, which is short for comparative market analysis, takes a look at properties similar to yours and the prices they sold at and then factors in a wide array of variables to try and pinpoint the best price to list your home for. The agent will look at the dates of the sales (the closer the better), location of homes that sold, size of the homes, and amenities. The idea is to try and find homes that are the most similar to yours in order to compare them and find the most likely price your home will sell at. When faced with an area where there aren’t a lot of comparable properties, your agent will need to look at other factors and try to adjust the values in order to come up with the best list price.
The Appraisal
Once under contract, the lender will order an appraisal. The goal for the lender is to justify the value of your home based on the price you’re paying – they’re not in the business of loaning more money than the home is worth. In order to do this, an appraiser will take into consideration many of the same items your agent did while doing their CMA. Things like date of sale, location, size, and amenities are all factored into their appraised value (not to be confused with the tax assessed value). Different loan types often result in different scrutiny too, for instance both VA and FHA loans tend to lean on health and safety issues in a home and look at whether a home meets a minimum standard of living. Conventional loans can be a little looser with those requirements, but it all depends on the lender and the loan product being used. Fannie Mae has a set of guidelines for appraisals that assists the appraisers in knowing what to look for and how to select comparables to do their analysis.
The Value of Your Home
Determining the value of your home isn’t always easy – sometimes there just aren’t enough sales of similar homes in your area to compare. In these cases, both agent and appraisers have to look elsewhere or adjust the value of properties based on their differences (ie giving more value to a home that has an extra bedroom or less value to a home that has a one car garage while your home has a two car garage). This is where experience and knowledge of the local area really come into play. The more the agent or appraiser know about the local area, the better theycan serve you.
In the end, it all comes down to comparing apples to apples. The more you try and compare an apple to an orange, the harder is gets.
image courtesy of Cubosh
