When it comes to evaluating real estate, there are a wide variety of factors we take into consideration. Condition, location and amenities are all important, but what people usually focus on first is the price.
However, price can be expressed in many ways. So, when it comes time to put a number on it, be sure you know which number you’re talking about.
-Sold price: You can get on your computer and look up the public record for just about any property. In the public record, there will be a section called “deed.” Under that heading, there is a list all the transfer dates for a property, the sales price, the grantor (who sold the house) and the grantee (who bought the house).
Normally, this information is pretty accurate, although it can be several months out of date. Plus, the public record doesn’t always tell the whole story on what a house has sold for. For example, the sales price won’t include what’s called a “seller subsidy.” A seller subsidy is when the seller has agreed to pay some of the buyer’s closing costs.
As a result, the true sales price should subtract out this number. In many cases, the seller subsidy might only be a couple thousand dollars, but it could be $20,000 or more.
-List price: When a house is listed for sale, this number is the “asking price.” Depending on market conditions and the seller’s strategy, the list price might be close to what the house will ultimately sell for, or it might be substantially above the final sales price.
In the buyer’s market, like we have now, sellers tend to list their homes for a little bit more than they would if we were in a seller’s market. That might sound a little counterintuitive. After all, shouldn’t sellers be more reasonable in the list price, given that there’s a lot of competition, and it’s a tough time to sell?
Well, from the perspective of a seller, they know that buyers are likely to make an offer under, and in some cases, a lot under the list price. Consequently, in today’s market, sellers try to build a little more “negotiating room” into their list price.
-Original list price: Especially these days, the current list price you see on a house, might not be what it was when the seller first put their place on the market.
In evaluating what to offer on a house, it’s important to know the pricing history of that property. How far a seller has already come down on the price can give you some insight regarding how anxious they may be to sell. A house that has been substantially price reduced might mean that it was grossly overpriced to begin with, or it may mean that the seller is ready to cut a deal.
Finding the original list price isn’t always easy. The property may have started out as a “for sale by owner,” or it may have been listed with multiple brokers. So, when determining the original list price, make sure your agent digs deep enough to uncover the real number.
-Assessed value: This number is the value the tax man has placed on a property for the purpose of determining real estate taxes.
In the property’s public record, there is a section called “assessment.” Under that heading, it will show what the government has determined to be the current tax value of a house. That number isn’t always a good indicator of what the property is actually worth. Changing market conditions and improvements a homeowner has made may make the assessed value an unreliable estimate.
In most places, properties are reassessed every three years. So, where you are in that cycle can also make a difference in how accurate the assessed value might be.
-Appraised value: For this price, a qualified appraiser renders an opinion of value, based on the home’s features and how it compares to the recent sold price of similar homes.
An appraisal may be done for a variety of reasons. When a home is purchased, the mortgage company will normally do an appraisal. But a house may also be appraised for a divorce settlement, refinancing or to determine value for an estate.
As with assessed value, this estimate could be right on the money, or it could be flawed. Appraisers follow a strict set of guidelines, but it’s not an exact science. Plus, certain important considerations, like location, aren’t always accurately reflected in setting an appraised value.
-Market value: Of all the prices on a house, this is the most meaningful.
The market value of a property is the convergence of what a buyer is willing to pay and what a seller is willing to take at any given point in time. When an agent lists your house, you should talk about not only the list price, but also the market value. They are almost always two different numbers.
It’s important that you see eye to eye with your agent on what they think the place will ultimately sell for. Having an agreement on market value will help you both formulate a successful marketing and pricing strategy.
-Historical prices: In looking at the price of a house, it can be helpful to have some historical perspective on the overall market trends. For example, when you look at a graph of national housing prices on a nominal as well as inflation adjusted basis, it’s interesting how prices have come back into alignment with historical trends.
Although the housing market in some parts of the country still has a lot of healing to do, and this stubborn recession is keeping a lid on things, it would appear that the real estate bubble has been substantially deflated.
So, if we could just get the economy moving again, and have mother-nature cut us some slack on things like hurricanes and earthquakes, it looks like the many different types of housing prices are starting to get back on track and we’ll resume the steady 3 percent return real estate has been known for over the years. Only time will tell.
Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is McWilliams@BobDonna.com.