When you look online at homes for sale, you are seeing the “Asking Price” that the homeowner wants to achieve. Many people then believe that the asking price represents a key ingredient for the “value” of that home. But that’s often not so. Homeowners are free to ask any price for their property that they wish. That doesn’t mean everybody in the marketplace agrees.
Often a seller will take into consideration some of the following factors to justify or select the asking price: (1)Assessed Value, (2)Appraised Value, (3)Purchase Amount, (4)Improvements. Let’s look at each of those. A typical misconception is that assessed value is the same as appraised value, or that either of those represents market value.
Appraised Value: This would be an amount given in writing from a certified property appraiser, giving an amount of money that is the suggested value of the property. Appraisers base their estimates on many factors including items like the age of the property, the size, the condition, the location, upgrades or additions, and the materials used in the construction. In our Charlottesville VA real estate market, we’ve seen appraisers who meticulously inspect a property in person, taking measurements and documenting details of the home. We’ve seen others who don’t bother to get out of their cars, instead they take the facts from other public documents. Generally an appraiser is selected by the lender to substantiate the value of a buyer’s home loan. Let’s say that again. In this case, the appraiser substantiates the value of the buyer’s ‘loan’. As in, verifies the loan value but not necessarily a market value of the home. So if a buyer purchases a $500k home but only needs a $100k loan for the purchase, the appraiser will make sure that there is sufficient market value in the property to contribute to justification of the lender’s $100k loan. And there can be multiple appraisal opinions on the same property from different appraisers…. hired by the seller or hired by the buyer/lender. Each state has its own regulations for appraisers, so the nature of the appraisal value can vary based on those requirements.
Assessed / Taxation Value: This is the value amount assessed (given) to the property by local/county/state authorities as a basis for its real estate property taxes. Assessed value determines the amount of real estate property taxes the homeowner will pay on that property. It names a value of your property that will then be taxed according to the applicable tax rate(s). This can vary from county to county and may even include city taxation too. Typically the taxation value relies on the property location, size, age, and recent sales nearby, and the actual real estate taxes will be charged at a percentage of that assessed value. The percentage method may differ from other states or localities, so it pays to not rely on any assumptions you may have from your previous homes in different locations. And like the appraisal valuation number… assessed value still does not represent market value. In Virginia our real estate property tax assessments are conducted by the county or the municipality and the taxes are expressed as “cents per hundred dollars of valuation”. Here’s your link to Charlottesville real estate property tax rates by county. Don’t nod off…Are you still with me here?
Investment of Repairs / Additions: Very few people notify the tax department when they remodel their basement into a living space. Motivation for that is, well… slim. As a result, there are many selling features of a home that only the seller knows about. It’s important to have a good plan with your listing agent to point out any features that would enhance the ultimate market value of your home but might not be readily evident to potential buyers. There’s also a gotcha trap in this category… not every repair or addition made to the seller’s home will translate into additional market value. It may please the seller to install a koi pond or a pool or dark paneling…. but that might not represent ‘value’ to some buyers.
Seller’s Own Original Purchase Price: This is a consideration that’s widely misunderstood by first time sellers. If you paid X for your home 5 years ago, and now you want to sell it for “X+ appreciation” increase…. you could be in for a rude shock. What you paid… and what your home is actually worth now… are not connected. The amount that you paid for your home is readily available to buyers with online property searches, so you can’t hide this number from dilgent buyers in the marketplace. And buyers frankly don’t care if you overpaid, if you have a 2nd or 3rd mortgage, if you inherited the home or won it in a lottery … or especially if your next intended home will cost 2X and thus you NEED a particular amount of money from this sale for your own move. Sorry. Your need has nothing to do with your current property’s market value.
What exactly IS market value then? The value that makes a difference to a buyer or to price selection from a seller, is the amount that the buyer is willing to pay for the property. If the buyer is willing to pay X, then X just became the market value of the property. So if no buyers are willing to pay the appraised or assessed values, then we know for sure that those do not yet represent the market value of that property. Your listing agent will be able to give you some real tools to determine your asking price. You’ll need some comparison of recently sold properties similar to yours or in your neighborhood, and you’ll also want to study the details of similar homes that are currently listed (your potential competition). Your choice of pricing will ultimately affect the length of time that your home is on the market, (but that’s another article).