Market Value

 

Market value? How much is your house worth? Well, if you don't really need to sell it, it is worth whatever you say it is. If you can honestly say, "I won't sell this house for less than $200,000," then it is worth that much - to you. If you need to sell it, however, what it is worth to you is entirely irrelevant.

Market value is the relevant value if you are ready to sell. This is what it is worth to all the home buyers out there. They don't care what you spent renovating the house. They don't care what you originally paid. If you spend $50,000 adding a pool, they may only pay $20,000 more for your home. Your home is worth what the market says it is worth.

Market Value - A True Story

AI used to be a real estate agent. I once did a "comparative market analysis" for a young couple who were getting ready to sell their home. This is also sometimes called a "market analysis," a "selling price analysis," or something similar. It consists of comparing the home to others that have recently sold in the area, to estimate what it should sell for.

I spoke to the couple. I looked over the home. I took my notes. I promised to return the next day. I carefully dug through "sold" listings books (this was before everything was computerized) and found nearby homes that had sold within the last six months or so. I made adjustments and did all the other work that I had to do, and came up with a market value of $115,000.

"$115,000!" They blurted out together. I was at their kitchen table, and I had all the papers with me. I showed them the three or four "comps," (listing information on homes that had sold). I thought I had done my homework well.

"We paid $90,000 for the house two years ago," he said. "And last year we put $40,000 into remodeling the kitchen!" she added. I explained that I took the kitchen into account. The kitchen was lovely, I assured them. Their $40,000 investment had probably raised the value of the home by $10,000. Then, perhaps with less tact than I would employ now, I explained that neither a market analysis nor a formal appraisal can take into account the desires, feelings or expenditures of sellers.

They didn't list with me. In these cases, the sellers normally find a real estate agent with lots of patience or not much business. The agent lists the home for too much, hoping the sellers will eventually get desperate to sell, face reality, and lower the price. Sellers get frustrated waiting, and often end up selling for even less than they would have gotten if they had priced it right to begin with.

Market Value

What, then, is market value? It sure isn't what you have into your house, or what you feel it is worth. It is simply what the market will pay. How do you determine what the market will likely pay? For single family homes, the best method is a comparative market analysis, whether done by a real estate agent or as part of a formal appraisal. Want to do it by yourself? It's not difficult to learn - but that is for another article.