Creating a fancy cake requires having the right tools: a commercial-sized oven, a big mixer, lots of fancy decorating tools, and above all: lots of practice and experience.
Last month, when I tried making a fancy cake, I struggled trying to make it look right, because I didn’t have the right tools – and I didn’t know the tricks of the trade.
Finding out “how much my house is worth” is similar to creating a cake.
It’s easy to create “a cake”, but it’s hard to create a professional-looking cake, just like it’s easy to come up with “a value” for the home, but it’s hard to accurately calculate “The Right Value” for the home.
When finding the value of a home, its accuracy depends on the tools that you use to find the information, and the experience that you have interpreting it. As a consumer, there are limited tools accessible to you so the results that you can get are less accurate than if you had access to the pro’s tools (just like having the right tools for creating a fancy cake).
What tools can you, as a consumer, use to find the value of a home?
1. You can check public websites
Public real estate websites with home listings can tell you what is for sale. Home listings can give you an overall idea of the home prices in an area.
The issue with using home listings is that you only know how much those homes are being offered for sale, and you don’t know what sold homes ultimately sold for.
To find out how much a home sold for, you can check some public real estate websites which also display sold homes. And, you can also look at the tax assessments database (also known as the “public records”). However, neither of these resources will show you if there was a seller subsidy at the time of sale which affected the net price of the home.
For example, if a home sold for $450,000, and the seller gave a subsidy of $15,000 to the buyer for the closing costs, the net sold price of this home was $435,000. But, the public records and other websites will most likely show $450k as the sold price.
Sold price: $450,000
Subsidy: – $15,000
Net Sold Price: $435,000
2. You can also use the tax assessments to compare among homes
Using the tax assessments, you could compare one home’s assessment over another to determine whether one is “worth” more than another one (keep in mind that tax assessments are almost always below true market value of a home).
For example, Home A which just sold for $450k, shows a tax assessment of $400k. Another home, Home B, is currently listed at $450k, and its tax assessment is $375k. Does that mean that home B should sell for less than $450k? If the home value were to mirror the $25k difference in tax assessment, the home would be worth $425k… but it doesn’t quite work that way.
Home A Home B
Listed At: $450,000 $450,000
Tax Assessment: $400,000 $375,000
You can still use the assessment value to compare homes but it’s a comparison based on only a few home characteristics.
Tax assessments are mostly based on the amount of land, and of built square footage, so when you are comparing Home A vs. Home B, you miss out on a true comparison based on other important points such as:
- Home A which has an out-dated kitchen and that backs up to the high-tension power lines, vs.
- Home B’s brand-new 35k kitchen renovation, and the flat back yard with plenty of privacy
Certainly, in this case, Home B has more desirable characteristics than Home A beyond mere size of lot and built square footage.
A third tool you can use to find the approximate value of a home is automated calculations:
3. Some websites do the work for you by doing automated estimates
Some websites automatically generate the value of a home based on public data. But the calculation is only as good as the data that is fed into it. And since the data usually trails actual market activity, these values are outdated.
For example – Home C is listed at $840k. Its tax assessment is $700k, and the automated estimate on a popular website is $785k. Unfortunately, none of these numbers reflect the true market value of the house.
List Price Tax Assessment Automated Estimate
Home C $840,000 $700,000 $785,000
As you can see, using the available public tools to find out “how much is my house worth?” is quite hard and highly inaccurate – just like trying to create a fancy cake without the pro’s tools.
An easier way to find out the value of a house is to get access to tools where there is more information available for analysis. One way to do it is to ask your REALTOR® to prepare a Comparative Marketing Analysis (CMA) based on data from the Multiple Listing Service (MLS).
How a Comparative Marketing Analysis (CMA) can help you
A CMA is an analysis of comparable homes sold, listed, and expired in the near past (say, 6 months or less). Using the data from the MLS, an experienced Realtor® can take into account not only lot size and built square footage, but also recent updates (or lack thereof) which affect the value of a house.
Certainly, a CMA isn’t a crystal ball and the actual market value is highly linked to the demand there is for the home at that specific point in time, so the CMA value is still just an approximation, but a well-done CMA can be pretty close the the actual value of the home.
The only way to get a feel for how much demand there is on the market is to experience it, and to ask your Realtor® about her recent experience in the field.
This way, armed with a CMA and a feel for the current demand, you can have the closest approximation for finding out how much your house is worth. No need to struggle through using public websites, tax records, and automated calculators – all to come up with a value which could be tens of thousands of dollars off.
It’s easier to use the right tools and to have the right experience by your side – just like when creating a fancy cake.
If you want to find out how much your current (or future) house is worth, call us, we’d be delighted to help you “bake it”.