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Decoding Real Estate Terms: Property Value
What is your home worth?
We’ve been to that yard sale where we offer $5 for the rocking chair and the seller insists it’s an antique worth $50! (Which begs the question: Then why are you selling it out here on the lawn, in the rain?)
The same concepts apply to selling and buying real estate – and the industry has so many terms and ways to value a property, it can get confusing. Home value tools you find on the internet muddy the waters – although these tools are interesting, they are simple calculators that do not know the current, local market trends.
To better understand how to set and evaluate a property price, let’s look at those terms:
Fair Market Value: Arguably the most important valuation term to understand, fair market value is what a willing buyer would pay a willing seller. The definition makes it clear that willingness is inherent in the value: That the parties negotiate the price through an arm’s-length transaction, that the parties are aware of all the facts, that the parties are not pressured in any way.
For example: Mr. Smith offers Mr. Jones $200,000 for his home, and Mr. Jones counteroffers for $250,000, when Mr. Smith agrees, the fair market value is $250,000. Contrast that transaction with Mr. Smith offering his grandmother $50,000 for her house and she accepts (more akin to a gift than a negotiated sale on the market). Or, compare the first example with a short sale – where the buyer merely pays off the mortgage. That transaction does not reflect the market price at all! Fair market value is determined when the buyer freely makes an offer, and the seller freely accepts.
CMA: A CMA, or comparative market analysis, is the procedure real estate agents use to set the listing price for a home (or help a seller decide whether to sell). To perform the CMA, your agent researches the closing price – the fair market value - of similar, recently sold properties in your area. Read that again.
First, the listing price of local properties does not mean that is what a willing buyer will pay. And, often, enthusiastic sellers or agents will over-price a property – causing it to either sit on the market for far too long, not appraise for the listing price, or suffer price reduction after price reduction! Fair market value is only established when the deal closes.
Second, the agent uses properties that have sold recently – not last year! The recency is a good indication of current market conditions.
Third, the agent carefully selects the geographic area. What a house is worth in Manchester is not what it would be worth on Lake Sunapee!
Last, the agent will carefully identify properties as similar to your home’s features as possible: Number of bedrooms and bathrooms, square footage, condition, acreage, location to water, special features and characteristics, and so on. Also note, the agent will avoid using short sales, foreclosures, inherited or gifted properties in her analysis because those values do not reflect fair market value.
Appraisal: An appraisal is an authorized valuation of a property – an educated guess for what the fair market value could be. Similar to a CMA, an appraisal is completed by a licensed appraiser who analyzes the property using factors like location, condition, and resent sales of similar properties. Typically, appraisals are used for real estate, collectibles, or businesses to determine market value.
For example, your insurance company may want your sports cards appraised so it knows how much insurance you need to cover replacing the collection. Or an entrepreneur may need her business appraised so she can sell half to a new partner.
Often hired by the lender, the appraisal assures the lender it is not loaning too much for the property (that the property is enough collateral). For example, if the home appraises at $500,000, the lender will not want to loan $600,000.
Buyers also use appraisals to renegotiate contract terms. For example, if a buyer offered $500,000 and the appraiser determines the home is valued at $450,000, the buyer may attempt to reduce her offer. Whether or not she can do so will be clearly outlined in the sale contract. An expert real estate agent will consider the appraisal process when pricing and marketing your home.
Assessment: Assessed value is the value the tax authority uses to calculate property taxes. To determine that value, the tax assessor uses a type of appraisal which considers the fair market value, improvements, and the characteristics of similar properties.
But realize assessment happens irregularly – maybe every five or ten years. Fair market value can swing over that time. So, although the assessor uses fair market value, the assessment only hints at what fair market value was when the assessment was completed.
Assessed value is also adjusted for the character of the property – whether it is commercial, residential, the zone, and so on. Also, assessors often do not set the assessment at 100% of the estimated fair market value. And homeowners can appeal the regulator’s assessment – altering the assessed value. So, although buyers should investigate the assessment to determine how much property tax will be owed, the assessment does little to set or reflect the fair market value.
We hope this information helps you appreciate the value of your property. When you are ready to list or shop, contact The Best Team in Town to help you!
And, for more expert advice:
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Part 2 of Our Two-Part Series:
In our April 3rd post, we gave you 5 ways to save for your home purchase down payment. Here are The Milestone Team’s second five tips to get you on the road to home ownership and your own special place in the world:
6. Make your savings work for you. Invest your down payment nest egg in a high-interest money-market or savings account. Avoid riskier investment (like stocks or crypto) so your principle is safe.
7. Start a side-hustle. Forbes recommends turning hobbies and passions into a side-business to earn additional income. You can also take a part-time job or…
8. Ask for a raise at work. The sooner you ask, the sooner you can save more for your new home.
9. Talk to a mortgage lender. Knowledge is power. Your local lender can offer steps and ideas so you can afford your dream home sooner. And…
10. Talk to your local real estate expert. Sure, you’re not buying your home today. However, you do not need to wait until you are shopping to engage your real estate agent. The Milestone Team members are experts and have the experience to help you save and shop wisely!
Don't forget for more expert advice to:
Did you know?
Songs of New Hampshire
New Hampshire has 9 state songs: One Official – Old New Hampshire -and 8 honorary songs. So, let’s sing-along!
- New Hampshire, My New Hampshire with words by Julius Richelson and music by Walter P. Smith.
- New Hampshire Hills with words by Paul Scott Mowrer and music by Tom Powers.
- Autumn in New Hampshire with words and music by Leo Austin.
- New Hampshire’s Granite State with words and music by Anne B. Currier.
- Oh, New Hampshire (you’re my home) with words and music by Brownie McIntosh.
- The Old Man of the Mountain with words and music by Paul Belanger.
- The New Hampshire State March with words and music by Rene Richards.
- New Hampshire Naturally with words and music by Rick Shaw and Ron Shaw.
- Live Free or Die with words and music by Barry Palmer.
We can also add songs that have not been granted an honorary title, but that capture all that is New Hampshire in a modern way:
- Okay, Alright with words and music by moe.
- Granite State of Mind with words and music by the Super Secret Project.
- White Mountain Fever by Jimmy Lehoux.
- New Hampshire by John Linnell.
And probably the most popular and known New Hampshire tribute: New Hampshire by Sonic Youth!
SPRING MARKET UPDATE
The housing market is not crashing.
In fact, we are in the strongest real estate economy where 48% of homes are equity rich with at least 50% equity. 63% of mortgages originated are below 4%.
Of note:
- Interest rates are fluctuating based on economic factors right now. Rates 6.5% - 7% mean limited buyer demand. Rates 7%-7.5% mean weak buyer demand. Lawrence Yun, chief economist of the Nat’l Assoc. of Realtors (NAR), expects rates to fall to 5.5% by mid-2023. Fannie Mae predicts 6.8% and Freddie Mac is 6.4%.
- Home prices will vary depending on location. Overheated markets are depreciating; others are appreciating. In NH, prices are up 5% thru Feb. 2023. The Home Price Forecast 2023 shows, for example, Realtor.com projecting +5.4%, CoreLogic +3.1%, NAR -1.6%, Fannie Mae -4.2%. Prices are expected to increase and reach more normal levels of 3%-4% annually starting in 2025.
- The biggest challenge is low inventory. The number of homes for sale in the US is 47.4% lower than it was before the pandemic. In NH, new listings are down 20.3% in Feb. 2023 vs. 2022. The lack of homes for sale has kept prices from falling. Fourteen years of underbuilding is one of the major reasons for this low supply.
Don’t let false information stop you from buying or selling. Contact me for the straight scoop on the real estate market.
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Donna ForestListing Broker
Contact me today!O: 605.526.4116
donna@donnaforest.com |
Photo by micheile henderson on Unsplash
Part 1 of Our Two-Part Series:
According to the National Association of Realtors, the most difficult step for buyers is saving for a down payment.
20% down is the market standard- although you may qualify for as little as 3.5% (FHA). It’s still a daunting challenge for many buyers to save even that 3.5% for a $300,000 purchase - which would amount to $10,500.
So, what do you do?
Here are The Milestone Team’s first five tips to get you on the road to home ownership and your own special place in the world:
- Create a vision board. Using a corkboard – or even your refrigerator! – display images of beautiful living spaces, décor you love, gardens you would want. The inspiration helps you prioritize saving for your special place versus spending impulsively.
- Get on a budget.Review and reduce your spending to maximize your monthly savings. Some ideas:
- Choose a “staycation:” Vacations can cost $2000 or more for a typical family. Check out local events, places to explore & stay, and put that extra cash towards your downpayment!
- Try a no-spend challenge. Each month, only spend on necessities and a few dollars for fun-money.
- Pay yourself first. Financial experts recommend “paying” yourself by setting aside 20% from each paycheck. Automate your savings by setting up an automatic transferwith your bank.
- Pay off debt. This seems counter-intuitive – “Shouldn’t I be saving every dollar towards my downpayment?” Every dollar that’s not costing you, yes. Paying off high-interest credit cards and auto loans not only saves you on interest each month, but also reduces your debt-to-income ratio and increases your credit score – which will help you qualify for your mortgage.
- Bank your next raise or tax refund. Yes, you really want that new flat screen television – but making the temporary sacrifice adds those extra funds to your down payment account!
Want more expert advice to save for your dream home? See our Part 2 later this month!
Photo courtesy of Keeping Current Matters
How much is my home worth?
This question is the most important asked of The Milestone Team Realtors. The answer is not as simple as “the neighbor’s house sold for X” or “I want to sell it for Y.” You want your home priced right – from the start. Too low, buyers will think “something is wrong.” Too high, buyers will be deterred – and your home may sit on the market for too long, also raising the “something is wrong” concern. Worse, priced too high can result in those incremental price adjustments – which is a buyer red-flag. Pricing a home correctly is one of the reasons to engage an experienced Realtor. Do you know that sellers who do not use a Realtor sell for significantly less than those sellers who wisely choose a Realtor from the start? Your local Milestone Team member knows the market, the neighborhoods, current trends – and how to price your home correctly so you attract strong offers and a quicker sale!
Photo by Greg Rosenke on Unsplash
Out & About in New Hampshire - Quirky New Hampshire
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The center of New Hampshire is almost entirely under water! And while New Hampshire has a mere 13 miles of coastline, its over 800 lakes and ponds and 19,000 miles of rivers and streams provide plenty of swimming and fishing spots!
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The state insect is the Ladybug since 1977.
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In Portsmouth in 1961, Betty and Barney Hill claimed to have been abducted by aliens.
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In 2005, Killington, Vermont proposed succession to become part of New Hampshire for the tax savings! (We can note that Killington is in the middle of Vermont, 25 miles east of New Hampshire...)
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New Hampshire has four nicknames: Mother of Rivers, White Mountain State, Switzerland of America, and The Granite State (the most popular).
Follow us on Facebook. Follow us on Instagram.
#Realtor, #TheMilestoneTeam, #TheBestTeamInTown, #shouldIsell, #realestateagent, #homesale, #NewHampshire, #newhampshirelife #nature #newhampshireoutdoors #visitnh #granitestate #livefreeordie
To rent or to sell?
The Milestone Team has advice for you!
Should you sell your home? Should you rent your home? These are serious questions that require serious answers and expert advice. The Milestone Team is your trusted Realtor advisor to help you answer those questions! Merrimack County, and its vacation-friendly seasons, offer property owners the opportunity to rent long and short-term. Many homeowners consider offering their home as a long-term, short-term, or Airbnb rental. Before taking the leap, consider the work it takes to be a landlord:
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Do you have the time to manage the property? Or: Do you have the resources to hire a professional property manager? (Bankrate)
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Are you able to make repairs – and willing to be on-call for your tenants?
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Are you staying local to be available to show the property, make repairs, or prepare the property for the next tenant?
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Do you need to “cash out” to purchase your new home? (Bankrate) Most homeowners are not interested in carrying two mortgages.
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Is your move temporary? (Bankrate) Renting your current home may be a wise choice – providing income while you are living elsewhere.
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Can what you earn in rent cover your costs? You will need to ready the property for tenants, advertise, and continue to pay your mortgage, taxes, HOA fees, and insurance. And: Realize rental income is counted as income.
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Can you handle the risks? According to Investopedia, you do risk theft or damage of your property - and carrying costs for an empty rental!
Renting your home is a decision not to be made lightly. If you are considering renting or selling, contact The Milestone Team to discuss the possibilities so you can make the best decision for you!
Photo by Priscilla Du Preez on Unsplash
PI Day. It’s not what you think!
March 14th – or 3.14 – is called PI Day because the date mirrors the mathematical quantity of PI – 3.14150… representing the ratio of a circle’s circumference to its diameter.
In honor of PI Day, The Milestone Team of Realtors hopes you enjoy this Old-Fashioned Apple Pie Recipe from our friends at Better Homes and Gardens. We also invite you to share photos of your pie with us!
See more Celebrations (aka excuses to make pie!) on our Community Calendar!
Pricing Your Home Is Not Magic
If you are thinking about selling, determining the right value is your number one priority. While sometimes it seems the price is picked out of thin air, there really are 3 methods for determining value. Below is a brief explanation of each.
- Market Analysis – Prepared by a real estate agent to provide an estimate of the probable selling price, expressed as a range. Using similar active and recently sold properties and factoring in the many characteristics that impact value, it is a guide to help the seller determine a listing price.
- Appraisal – A much more in-depth analysis done by a licensed appraiser. Typically appraisals are used in the loan process to ensure the value of the home is equal to or greater than the purchase price, thus protecting the lender’s interest.
- Automated Valuation – Used by Zillow and other companies, the value is calculated by software based on mathematical modeling. While convenient, it misses important price influences such as property condition and location (e.g., on a busy street).
Want to know your home’s value? It’s a complicated market with shifting impacts. Contact me and put my 29 years in the business to work for you!
Donna Forest, Broker - Realtor
