Six Things Homeowners Get Wrong About Their Home Value
One could keep a watchful eye on all the real estate listings in their neighborhood and even visit all the nearby open houses on the weekends and still not know the current value of their own home. It can be fun to play the game of guessing your own home's value every time a house near you sells. But real estate can be a high stakes game, despite what sometimes seems like play money being thrown around on real estate TV shows. Missteps can cost thousands, even tens of thousands of dollars, but how do you know what you don't know? Here are the top six things most homeowners get wrong about their home value.
1. TRUSTING AN ALGORITHM FOR A HOME'S VALUE
Well-known national real estate websites like Zillow offer home value estimations via a computer algorithm. Despite the numerous commercials and relative prestige of computer generated home values like the “Zestimate”, these results do not provide the true value of a home. These home value estimates are notorious to real estate professionals who recognize their inaccuracy. In fact when Zillow CEO Spencer Rascoff sold his condo, the Zestimate was off by 40 percent.
Why are these computer generated home value estimates so wrong? There are too many variables that change too rapidly to get the full picture. The assumption is there's a real inherent value to a house but this isn’t necessarily true. There's what a buyer is willing to pay for a home on the day they buy it and what the seller is willing to take for it. So it partly depends on what buyers are shopping that particular week. Just because it is a shiny website and looks like it has authority doesn’t mean it is accurate. A computer-generated value at best is a guess.
2. THINKING THE PRICE OF A NEIGHBOR'S HOUSE WILL TELL YOU YOUR HOME'S VALUE
You see a sold sign go up on your neighbor’s house. Quickly, you do the math and figure out the price per square foot, then apply it to your own home to get your value. While this seems logical, it is not accurate.
You don't really know the details of the house that sold or the way it was marketed. It is possible the Realtor took bad pictures or the homeowner took out loan after loan and is selling a home that is under water. Also, you don’t know the conditions upon which, or to whom it was sold, or even the terms or circumstances. For example the home could have sold for cash, the owner could have been leaving the country or going through a divorce, and we’ve yet to even mention the huge variance possible in the condition of the home.
All square footage is not equal. If it were, that would mean 4000 square feet should be worth twice as much as 2000 square feet. What are square feet? Some square footage is more valuable than others, for example bedrooms are worth less than bathrooms. And there are a myriad of other variables that are hidden.
3. BELIEVING AN APPRAISER SETS HOME VALUES
While appraisers help banks determine if making a loan on a particular home at a certain price is a good risk, the appraiser does not set the true value of a home. Home values are set by what a homebuyer is willing to pay for a home and what the homeowners will accept to sell it. The appraiser doesn't have to agree that someone paid the right amount. Their job is to tell the bank if a homebuyer defaults that they’ll be able to get their money back for that amount.
Despite the common worry during home buying and selling that a house won't appraise for the sale price, rarely does it not come in at value. By definition if you're willing to pay it, it's worth it. Because why would you pay for it if it wasn't?
4. THINKING RENOVATING BEFORE SELLING WILL BOOST A HOME’S VALUE
It is tempting to upgrade the kitchen or get new carpet right before you sell, but it probably isn’t worth the time. If you spend fifteen thousand to redo a kitchen will you get twenty more thousand from the sale? Maybe. But the kitchen will be torn up for six months and you can’t accurately predict how well your local real estate market will be performing six months from now. Also, everyone may not love your choices.
Unless you are a professional home flipper the right time to remodel is when you plan on staying to enjoy the remodel. This way you can love it and use it and if you don’t get all of your money back out of it you won’t care as much. Otherwise, when selling clean your home really well and make it neutral. You may get less, but the net will be the same and you save yourself the hassle.
5. UNDERESTIMATING THE ROLE OF A REALTOR
Purchasing a home is the most expensive, most emotionally impactful, and one of the most infrequently made sale and purchases in our lives. You likely wouldn’t represent yourself in court, so why would you represent yourself with such a large and rare sale and purchase of a home?
An experienced Realtor is trained in legal contracts, negotiation techniques and marketing tactics that garner the best value from a home sale. They have contacts with title companies, mortgage loan companies, lawyers, professional photographers, home stagers, home repairmen and other services that play huge roles in your real estate sale. They keep you on track with necessary deadlines throughout the process and can be leaned on for questions that need expert answers. Also, they have a fiduciary responsibility to protect their clients’ interests.
Finding a good Realtor isn’t like picking a great restaurant. Don’t just rely on recommendations and online reviews. Be sure to interview any potential Realtor for your home sale. With a little work you can be sure you get a quality Realtor by asking the right questions. Ask about experience, ask about performance and their latest sales statistics. For a complete list of what to ask, click here.
6. THINKING YOU CAN SAVE SIX PERCENT BY SELLING YOUR HOME YOURSELF
While in a very hot market there could be some value in doing for sale by owner, the math for this rarely pans out. Consider that any homebuyer you meet is probably working with a Realtor. To protect their interests they will ask you to work with and pay their Realtor. So that means three percent of the sale will go to the buyer’s agent.
Now ask yourself, what is your time and legal responsibility worth? You’ll need time to let strangers into your home and leave while they're there. You’ll need to do all the work, somehow find a way to price it correctly, and not mind the risk involved in the liability of getting it to close. For those who don’t negotiate for a living, or sell dozens of homes a year, are you going to trust that the buyer’s agent is somehow not going to take advantage of your lack of knowledge?
Also, when selling one’s own home potential buyers are apt to treat it like a yard sale. It doesn’t help that the same sign from Home Depot that says 'yard sale' looks like the one that says 'home for sale.' No one goes to a yard sale and pays full price. You’re more likely, and statistics prove that working with a Realtor will help you sell your home faster and for more money.
If you are thinking of listing your home or would like a true competitive market analysis to find your home's current value, contact Donna & Gil for no obligation assistance. It's just another way that we help homeowners and communities.