How Much is my Home Worth?

To my mind, the essential question of real estate is: "how much is my property worth?"

For this blog entry, I won't go in to detail about how I personally determine what I think is a marketable (i.e. will attract able buyers reasonably quickly) price for real estate. For that, you'll have to hire me!

But, I think a general discussion of what determines the price of real estate is warranted, because so many buyers and sellers with whom I speak seem to misidentify the major contributing factors of price while simultaneously informing me about "the beautiful hydrangeas that should come up any day and add at least $1,000 to the price...right?!"

Of course, as any economist will tell you, a discussion of what contributes to price in a market is worthy of thousands of pages of erudite discussion and years of careful research. The average buyer or seller though, doesn't have time to carefully consider the myriad economic forces exerting influence on the real estate market, so most people rely on the advice of expert real estate agents.

However,  many real estate agents don't seem to spend a lot of time reading about economic theory and analysis, so they determine pricing with what I term a geographic relativity metric. In other words, they simply look at the recently sold homes in your neighborhood, and figure your home is worth the average of those prices.

To be sure, I think this approach is roughly correct. Fundamentally, I believe a piece of real estate is worth what a buyer has paid for it. This is completely relative of course. However, I also think determining what a future buyer will pay is not as simple as determining the average of what other recent buyers have paid for similar properties in the same area.

Each buyer is affected by different market forces, and these forces will increase or decrease the perceived value of a given property depending upon the needs of the buyer. A horse barn contributes much perceived value to a horse owner. But, this same property is significantly less valuable to a buyer just looking for a nice house in the country. A beautiful garden may increase the value of the yard in your eyes, but for those who suffer from allergies: it may make your yard look like an expensive paving project! 

I'm sure you can think of thousands of examples, but the main point is that location is not the only important factor in determining price. I know the real estate mantra is "location, location, location," but that is too reductionist, and may lead to a significant under or over pricing of a given property.

With all that said, here are just a few helpful thoughts to consider in determining a marketable price for your home:

  • Consider the buyer.
  • What are the characteristics of a buyer my home may attract?
  • Which features of my home are particularly valuable to those buyers?
  • Which recently sold homes in the area have all, some, or none of these features, and what were the sale prices for those homes?
  • You bought your house for $X in 1999. Which other houses that sold for $X in 1999 have sold recently? Where are they? For how much did they sell? What kind of features do they have?

As you can see, a useful and reliable comparative market analysis should be much more wide ranging and in-depth than comparing 3-4 houses on the same street.

With a well researched and grounded analysis, you can be reasonably assured that your property will sell in the near future and that you won't be losing any potential profit. 

Jay Villella