For homebuyers, determining what a home is worth requires systematic analysis, careful thought, and some guts.
Value
The value of a property is established by the prospective buyer. Market value is an opinion of what a buyer thinks the home is worth, based on how it will be used. Value is calculated based on one’s lifestyle, so it is different for each perspective buyer. For example, a home near public transportation could be more valuable for someone who does not drive than it would be for someone who does. Buyers with children, may consider a home in a particular school district more valuable than another.
Price
Price is what the home should be worth in today’s market. Occasionally, a seller doesn’t price the home right, so what a buyer must do is an analysis to determine the fair market value of the property. This is what the seller should reasonably be asking for. Similar, recently sold properties (six months or less), should be used to establish fair market value. They should be similar in size and upkeep to the property you are considering. Of course, the current condition, location and surroundings, as well as the view from the property, can all affect the price of a house.
Cost
Typically, sellers believe a house is worth what they paid for it, in addition to how much was spent on improvements. In reality, when a seller improves a home, the value of the property is increased, not the cost. Since value is based on the buyer’s preferences, improvements and other extras are all subjective. A seller could receive dissimilar offers from potential buyers because they have made personal decisions about the home’s value. When a homeowner makes improvements, they receive benefits from those choices and if they remain in the property, derive pleasure from that investment. When those improvements are very specific, or personalized, they may not received the monetary benefits they expected.
If you or someone you know is considering buying or selling a home, contact me so that we can analyze the situation together.