What Drives Residential Real Estate Value Part 1
Posted August 15th, 2016 by evotta



Part 1 – What’s My Home Worth?

Selling your home is a significant, emotional, and (for most) an infrequent event. Homeowners – especially those who haven’t been in the market for years – tend to rely upon easy resources that fail to predict an accurate home value. Web sites such as Zillow, Trulia, and Realtor.com feature useful information regarding a range of values within a marketplace and even offer a nice glimpse into recent activity within the area. In the end, however, an accurate approach to valuation requires examining the unique features of the home in question (location, condition, size, functional utility, features, amenities, and improvements) in terms of their appeal to buyers. Unfortunately, owners typically find it difficult to see their homes through the eyes of buyers.

Sellers Set Prices, Buyers Set Values

Predicting the likely sale price of a home requires an appraiser or real estate agent to “walk in the shoes of the buyer” and report an objective analysis of value. So what drives this value? Looking at competing homes and recent sales, the analyst gains awareness of the common attributes recent buyers are looking for in a home:

•  Location – could be about schools, parks, waterfront, cul-de-sac, or even less obvious attributes like sidewalks with mature trees or the unique history of a specific area

•  Condition – not simply functional but cosmetic too. A newer roof or water heater is necessary for the proper function of a home, but new kitchens and baths, updated floor coverings of exotic woods and tile, and modern electrical, heating and plumbing systems all feature heavily amongst the competition in most markets.

•  Functional Utility – family-friendly number of bedrooms and baths, a spa-like master suite, full basement, outdoor living amenities, and sufficient garage space can be crucial to buyers.

•  Appeal – exterior style of the dwelling (whether grand or charming), interior decorating, construction material, observable maintenance, attention to landscaping, and surrounding area.

When shopping for homes, these are the features and amenities by which buyers judge the appeal of what’s available. These are often the “must-haves” that represent the “value drivers” of the property. Understanding the impact – and, therefore, the price – associated to the value drivers includes an unbiased assessment of the subject home’s conformity, or lack thereof, to the nearby houses that have recently sold, as well as to those currently on the market. Unbiased experts can quantify the market price of the features and amenities described above by identifying trends in home sales that reflect buyers’ behaviors and preferences.

By contrast – and counter to the goal of pinpointing the current value of a home – homeowners unfamiliar with the accepted methods to measure market prices instead rely on a number of popular but misguided indicators:

•  Attention grabbing media headlines about a “hot” market and articles about appreciation rates.

•  The “Zillow” value.

•  Indiscriminate formulae based on average prices in the city or dollars-per-square-foot.

•  The appraised value from a “few” years ago, or even longer – don’t forget that real estate values and trends are fluid!

•  The base cost of the home plus the money spent over the years on improvements and updates.

•  The asking price of friends’ and neighbors’ homes, regardless of differing style, size, location, etc.

These misconceptions tend to blind the typical homeowner from seeing their own home through the eyes of prospective buyers and accurately pricing a home for a successful and timely sale.

In short:

•  There’s no shortcut to predicting value. Recent, nearby comparable sales are the foundation of valuation, and measuring the typical buyers’ responses to differences in size, condition and functional utility is the finishing touch.

•  There’s no substitute for the comparable sale approach to valuation. Buyers are the key, for they alone know what they want and what they’re willing to pay at that given time in that given marketplace.

•  Things change. Like any commodity, real estate values fluctuate based on market conditions beyond the owner’s control. The price paid for the home 2, 5, or 10 years ago has no bearing on the current value.

For most prospective residents of senior living communities, the home sale is an emotional, if not financial, barrier toward them being able to move and truly enjoy their new home. Many sales counselors realize that talking about the home sale is a necessary part of helping their future resident move forward, and conversation of value drivers is just as important today as it was a few years ago. For additional information, or to discuss positioning with your future residents, do not hesitate to contact Moving Station.

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