Market Value is the highest price a willing buyer would pay, and a willing seller would accept, neither under duress and both acting prudently and knowledgeably with the property having adequate exposure to a Competitive Market.
This is paraphrased from the definition used by the IRS and Courts.
MARKET VALUE IS NOT
… how much a Seller has into the property
… how much a Seller needs to get out of a property
… how much a friend or relative says it is worth
… how much a Buyer will pay without adequate exposure to a Competitive Market.
Note: Zestimates are easy and not very accurate especially in Marin and San Francisco which both have only a two-star rating according to Zillow.
LIST LOW, GET MULTIPLE OFFERS: The hallmark of the lazy Real Estate agent. Remember, agents who gamble by recommending listing significantly below Market Value in the hopes of a bidding war are not gambling with their own money. You get one shot at multiple offers in the first week or so and there is no way of knowing when the little lulls and eddies are going to hit the market. Yes, in the hottest markets in the hottest neighborhoods pricing below market value can work much of the time. But when it doesn’t work it is an epic fail for the Seller. Having an underpriced listing that is stale on the market is not a fun place to be.
SELLING A LISTING: Giving a listing to an agent who tells you the highest price is foolhardy at best. Agents call this practice “Buying a Listing”. The idea is that the agent will get the Listing Contract signed at an unrealistic price with the hopes of getting a price reduction before the property becomes too stale on the market. Even if the home doesn’t sell the agent will get new clients from the advertising and open houses.
CHASING A FALLING MARKET: This is the practice of Listing the property high in the hopes someone will pay too much before the market retreats further. If it doesn’t sell, then apply small price reductions hoping to trick a Buyer into paying too much. Inevitably the Seller will take less for the property than if he or she had gotten in front of the falling market with the initial price or subsequent price reductions.
A Fee Appraisal is an estimate of value by an unbiased independent licensed appraiser using comparable sales and other techniques on properties within proximity and within the last six months to determine a value for lenders while using Federally mandated guidelines.
Rarely will two fee appraisers arrive at the same value for a property in our local market.
Except for lenders who are relying on an appraisal to justify making a loan, Market Value trumps Appraised Value. Having a recent fee appraisal does not mean that a Seller will get that price during a sale.
Market conditions can change significantly within six months, so this method seldom accurately reflects the most current market conditions. It is an effort to establish value by looking in the rearview mirror. See Active Market Pricing.
A Fee Appraisal often reflects a market that no longer exists.
"What's a Zestimate?
A Zestimate home valuation is Zillow's estimated market value. It is not an appraisal. Use it as a starting point to determine a home's value.” * From Zillow website 02/06/2018
COMPARATIVE MARKET ANALYSIS
Realtor CMA or Comparative Market Analysis is an estimate of value compiled by a real estate agent usually for the purposes of securing a listing. There are no guidelines and agents can cherry pick comps to sway the results. A knowledgeable ethical Realtor should come up with a value close to that of a Fee Appraisal.
Like the Fee Appraisal the CMA often reflect a market that no longer exists.
ACTIVE MARKET PRICING
Active Market Pricing compares your property to Relevant Active Listings that buyers are looking at today that will compete with your property. We also look at the Relevant Pending Sales where buyers have most recently committed to buy.
This is how a Buyer views the market and determines which of the homes that fits their needs that they will write an offer on.
This process finds the price niche where your property will be the most competitive, raising the chances of multiple offers.
With Active Market Pricing, Sellers benefit from the most recent increases in value.
Active Market Pricing takes into account:
Demand: How many Buyers are in the market today compared to the number of available properties, i.e. Months of Inventory
Competition: Number and price of similar properties directly competing with your property today.
Condition: How does the condition of your property compare to the condition of the competition and the properties that are now coming on the market and those that just went into escrow.
Market Trend: Is the immediate market cooling down or heating up. It’s OK to aggressively price in front of a rising market but never, ever chase a falling market. Active Market Pricing lets you take advantage in what the market is doing today not what it was doing three to six months ago.
HOW DEMAND VS INVENTORY
AFFECTS SALES PRICE & TIME ON MARKET
Most Desirable Properties / Turnkey
-Demand exceeds inventory, multiple offers possible
Homes with a Few Oddities / Deferred Maintenance
-Supply exceeds demand (Most want “Desirable / Turnkey”), more time on market, more price sensitive
Fixers in Desirable Area
-High demand, low inventory for immediate upside potential for contractors, price sensitive but multiple offers possible
-Supply exceeds demand, more time on market, more price sensitive
PRICE IT RIGHT
PRICING AT OR NEAR MARKET VALUE: To consistently get the best price, list the property at or near Market Value, work the listing hard, listen to what the market is telling us and respond, accordingly. I’m not opposed to raising a price if it looks like we can get more. I also have techniques for keeping a listing fresh. Let’s talk.
While the Market Value definition applies to all sales, if you have an ultra-high end property that in and of itself is a work of fine art or the home belonged to a celebrity that people are awe struck by, today, * then your property may attract an offer more than any of the following analytical approaches would justify. However, very few properties fall into this category.
* Gene Autry’s mother’s 1100 sf home in Mill Valley would not qualify.