There’s no Kelly’s Blue Book for houses. Unlike cars, stocks, or commodities, every house is unique and has its own value reflecting age, size, location, condition, and features.
For most homeowners, their home is their most valuable asset. They need to know its value to refinance their mortgage, their home, or plan their retirement or estate. Determining a house’s value, however, is not an easy task.
Price and Value
It’s important to begin with an understanding of the difference between price and value. Prices paid for homes reflect marketplace conditions like demand and the supply of homes. Bidding wars, mistakes in list pricing, low appraisals, changes in mortgage interest rates, and effectiveness of marketing techniques can all affect a house’s closing price—but they have nothing to do with a house’s intrinsic value.
It’s often said that a home is worth what someone will pay for it, but that’s not true. A mortgage lender will want convincing data and a professional analysis that a house had a specific value. In the event the owners default their mortgage, lenders are going to what to know what lots of people would pay for it, not just one.
The last work on home values in real estate usually rest with appraisers, who lenders hire to value homes before closing a mortgage. Appraisers inspect the home and research recent sales of comparable homes (comps) to get an idea of current market prices. They also research the home’s sales history and databases of appraisals of similar homes in the immediate vicinity.
An appraisal that comes in lower than the contract price can have serious consequences, since lenders won’t loan more than the appraised value. If that occurs, Sellers have to take less or buyers must come up with more money to make the deal work.
Sellers can guard against losing deals to low appraisals and get guidance on how to price their home by conducting their own appraisal before listing. Also, their real estate professionals will provide reports called competitive market analyses (CMA) that list nearby comps and provide a range of values for pricing purposes.
Big Data Solutions
One of the problem with appraisals and CMAs is that they are based on current and recent past values, but they can’t really anticipate how a home’s value might change in the near future.
To get fix on near term trends in values, real estate analytics firms are harnessing the computer power of big data applications to create databases of house values that go down to the level individual houses. One database, developed by Allan Weiss, former CEO of Case Shiller Weiss, uses indexes based on each homes’ sales history combined with other factors including location, size, price tier, and age to come up with a valuation and 12 month forecast for nearly 100 million homes. Weiss also creates dynamic maps of later metros a 5500 Zip codes to illustrate how values are changing. You can get a free valuation of your home here.
Technology is helping homeowners and buyers value their properties more accurately than ever before so that they can make informed decisions about the most valuable asset they may own.
Filed Under: mortgage monday