The 4 Points of Pinpointing a Home's True Value
Many factors go into the process of figuring out the market value of a home. Of course, you can go online and check out the automated home value estimator of your choice. But these are just ballpark figures. A big ball park.
This is an online estimate for a 2 bed 2 bath 2,079 square foot home in California Country Club Estates built in 1952:
Zillow $2,357,680
Redfin $1,837,626
eppaisal.com $1,664,609 - $2,252,118
SmartZip $1,949,753 - $2,008,684
Chase Bank $1,986,500
The high is $2,357,000 and the low is $1,664,000; the difference being $693,000, which is a sizable chunk of change. Online estimates are based on public records, which are often inaccurate. We know for a fact that this home actually has 3 bedrooms, not two. It also doesn't take into consideration that the back patio, landscaping, and closets have been recently updated and are beautiful. We also know that the kitchen and one bathroom are, though pristine, still rocking that 1952 original design.
How the professionals do it:
In real estate, the way a good agent determines market value when selling a home is to prepare what is referred to in the business as a comparative market analysis (CMA). We generally call it a "comp". This may seem obvious, but when we perform a comp, we really want to make sure that we are looking at properties that are really comparable. Apples to apples.
Point 1: The Home and Amenities.
There are some steadfast and true amenities that a real estate agent will look at when trying to compare one property to another. Some of these things include the following:
The number of bedrooms and bathrooms.
The square footage of the home.
The age and condition of the home. Pest-free? Has it been updated?
The amenities: central air, pool, garage, ADU.
How nice is the lot and what's the size?
We also assign a dollar value to a number of these items. Here are some examples:
How does having 3 bedrooms vs 4 bedrooms in the same size home impact value?
To what extent does having an extra bath add to a home’s value?
What's the difference in value of having a one car garage versus a two car garage?
What's the difference in value of being in the top-rated neighborhood versus an average neighborhood?
How much value is added for a kitchen that has custom cabinetry, granite counters and stainless steel appliances versus that 1952 model that just keeps cooking?
What is the added value of being in the best school district or walking distance to work/dining/entertainment or having great freeway/metro access?
Point 2: Architectural Style.
A Spanish Bungalow is not comparable to a Mid-Century Modern Ranch and is absolutely not comparable to a contemporary or Victorian. These are all completely different styles of homes: apple, orange, peach, and pear.
Point 3: Neighborhood.
The neighborhood makes a huge difference. Safety, schools, and HOA's all factor in, but so do the presence of parks, tree-lined streets, lighting, and security patrols. For example, we never compare a home in Cheviot Hills to a home in Hancock Park, even though the houses might be near perfect matches. That would just be silly. Even sillier, comparing Brentwood to Westwood. Both are lovely areas, but VERY different.
Point 4: Market Timing.
Seriously, the more recent the data the better. Most real estate appraisers will tell you that comparable sales data outside of six months should not be used. We like 90 days. Markets can change quickly, so you want the information to be as fresh as possible.
A sold property is absolutely the most important piece of data because it is tells us what someone is willing to pay for a like property.
Pending sales data gives you a good indication of value as well because the home has gone under agreement more recently.
Homes currently for sale is the least important data point when determining market value. (The problem with looking at homes for sale is that the price can change at a moments notice.)
The fact is that most homes on the market are improperly priced and this mistake typically ends up costing the home seller tens of thousands of dollars, as well as killing the schedule that they wanted to meet. We're more careful than that. So while you may look at the online evaluation, there are many more factors that go into determining a true market value of a home.
If you would like to know what your home is worth, give us a call. We are happy to do a comp on your home.
P.S. That home we used as an example actually prices well on the lower end of the spectrum, around $1.8M. The kitchen and baths need updating, but the third bedroom is a bonus. For this home, we'd find a buyer who likes the 1950's vibe, but who also likes indoor/outdoor living, and is willing to make a few modifications in the future.