The value of knowing your home's worth

Home values have been rising rapidly in many parts of Oregon in the last year. Odds are that just about everyone reading this newsletter has had a home go up substantially in value during this time. Yet, many people don’t think of the place they live as an investment. The reality is that, for most people, their personal residence is the most valuable investment they will ever make.

The value of the real estate that a person owns affects so many major financial decisions and, in the long run, should provide a substantial “nest egg” later in life. Hence, even someone who doesn’t plan to sell soon, should be aware of the approximate value of his home.

The type and amount of credit a person can get often depends not only on income, but on the value of assets, such as a home. The amount of homeowner’s insurance a person needs depends on the value of the home being insured.

Summarized below are the most common ways the value of a home is estimated by the real estate industry, financial institutions, appraisers and the government.

Pricing Analysis

One of the many services a real estate broker provides is a pricing analysis designed to give clients a view of their home compared to other homes in the market. Also often called a comparative market analysis, or CMA, the pricing analysis includes the listing and sold prices of similar properties. Similar properties are those of approximately the same age and with approximately the same square footage, number of bedrooms and bathrooms, lot size, amenities and condition that are located as close as possible to the property whose worth is being estimated. Because much of a home’s value may be based on the emotional impact that the home has on buyers, subjective selling points such as street appeal, interior décor and the floor plan may also be considered.

A pricing analysis gives a quick overview of the market and helps a homeowner set the best price for his home when he decides to sell. Setting the right price before putting a home on the market is critical to getting the most money for a home. A home that is over-priced may languish for months—and even years—requiring multiple price reductions before a successful sale eventually results. An under-priced home may sell quickly, but provide less than a fair return to the seller.

The Appraised Value of A Home

While a pricing analysis offers an informal market opinion of what a home should sell for, a professional appraisal provides a more detailed evaluation of a home’s value based on a certified appraiser’s knowledge, experience and analysis of the property. Most lenders arrange for an appraisal as part of a home buyer’s loan application process, and the appraised value will determine how much the lender is willing to lend.

Appraisers use a number of factors to estimate a home’s value, many of which are the same as, or similar to, those included in the pricing analysis. Appraisers may also use replacement cost or the amount of income generated by a property to estimate the value of unique properties.

Fees for an appraisal generally range between about $400 to $600, depending on the type of appraisal method used and the characteristics of the property. The appraiser’s report provides a detailed description of the property being examined, as well as of any properties used for comparison. The report also specifically states any limitations on the scope of the appraisal. Items commonly found in an appraisal report include:

• A detailed synopsis of the subject property’s features;
• Side-by-side comparisons of similar properties;
• An evaluation of the overall real estate market in the area;
• Notations on issues the appraiser feels negatively impact the property’s value;
• Identification of significant, visible problems such as a crumbling foundation or fallen fence;
• An estimate of the projected marketing time for the property.

Assessed value

Some people confuse the terms “appraised value” and “assessed value.” Assessed value is the estimated worth placed on a property by a public tax assessor, which in turn determines how much is owed in property taxes. The way assessed value is calculated may vary broadly by county. In a few cases, the assessed value might be the same as the appraised value. However, a home’s assessed value in Oregon is typically based on a percentage of the property’s estimated value at the time of construction, plus annual adjustments determined by the tax assessor. An increasing number of municipalities are posting assessed values online. To check for values for your area, type “assessed values” into a search engine along with your individual county name.

Home Inspection Versus Appraisal

Appraisers will make note in their reports of any obvious problems they see, but they don’t do detailed inspections of a home, especially of such things as the roof, foundation, chimney, electrical system, etc. Hence, an appraiser cannot be relied upon to accurately estimate the condition of a home.

A professional home inspector conducts detailed examinations of homes to assess condition, especially noting any potential health and safety problems. This inspector also will make recommendations for addressing problems found.

The issues discovered by a professional inspection may be important to know, whether a sale of the home is planned or not. Regular inspections allow an owner to protect his investment by addressing minor issues before they become major problems. These inspections may sometimes be obtained at little or no cost.

Factors Affecting Value

When considering value, it’s still the basics that count most:

1. Location—If your house is in a desirable area, you’ll be able to get a higher price than you would for the same house in a less appealing neighborhood. It’s better to have the worst house in nice neighborhood than to have the best house in marginal neighborhood.
2. Features—This includes the size, age and style of your home; number of rooms; size of the yard; topography and landscape of the lot; and the quality of construction.
3. Condition — An attractive, well-maintained home will sell faster and at a higher price than a fixer-upper.
4. Timing—Includes the season of year and the owner’s schedule for needing a sale. An owner’s motivation to sell is usually one of the most important factors affecting price.
5. Market Conditions—The price a home commands is influenced by local and regional economic conditions, current residential real estate market demand, available financing, and mortgage interest rates.
6. Extra amenities—Updates and luxury extras all add to the value of a home. These include items such as a gourmet kitchen, extra bathrooms, finished basement or attic, walk-in closets, a spa, lavish landscaping, and a patio or deck.