Before going to market, if you want to know how much your home is worth, you can ask a few real estate agents for a Free Market Appraisal, engage an Independent Registered Valuer, or get a Free Online Estimate. Or all three. The problem is: you’ll get wildly different answers from each of them. In truth, when it comes to predicting the current market value of your property, none of them can be relied upon.
While studying for a valuation degree we were taught to analyse value in a logical way – looking at tangible and measurable things like floor area, land size, age, and the like, then comparing with similar recently-sold properties in the immediate location.
We were taught to be objective. To remove emotion from the equation. For a valuer this is necessary. If challenged, they must be able to stand up in court and prove their case. To logically justify how they arrived at their stated estimate of value.
After graduating, instead of becoming a Registered Valuer, I was called to enter the real estate industry. It didn’t take long to realise that while logical analysis has an important place for budgeting purposes, even a Registered Valuation is like a game of pin the tail.
Certainly, it’s an educated, unbiased and professionally considered stab in the dark. But a stab none the less.
Because ‘Value’ is an opinion.
No doubt your kids (or grandkids) masterpiece stuck on your fridge is priceless to you. No offence intended, but it’s worthless to almost everybody else. You see, since ‘value’ is an individual & personal opinion – what something is worth to you can be completely different from what it’s worth to the next person –especially for property and other things that hold an emotional connection.
This is clearly demonstrated when more than one buyer wants to buy the same property at the same time. Meaning they’re each required to put their absolute best offer forward, or risk missing out. In these multiple offer situations, we rarely see two offers of exactly the same price, and even rarer with the same price and conditions. Sometimes they are close, but more often than not there are large variations. I’ve recently seen differences between offers of more than $50,000.
(As an aside, this is why I seldom recommend clients sell by Public Auction. The buyer with the highest opinion need only place one bid over the second highest buyer – meaning they often buy the property for much less than they were prepared to pay. There are smarter ways to ensure each buyer offers you their best. But that’s a topic for another day.)
Nobody can tell you exactly what your property will sell for in advance.
Nobody has a crystal ball. Nobody can predict exactly what somebody else’s personal opinion of value may be. At best they can guess. Or bluff.
Ultimately, there are only two opinions that matter: Yours as the seller, and that of the best buyer.
As we’ll touch on again, finding the best buyer and extracting their best offer, has nothing to do with an agent, valuer, or a computers opinion. It’s about getting your strategy and process right. It’s about implementing a proven and documented approach that consistently creates superior results.
Free Online Estimates:
Frankly, these are a complete joke. Actually, they’re downright dangerous for basing any serious decisions upon. (BTW your RV – Rateable Value – also falls into this category).
How can an algorithm possibly know the quality of your property’s presentation, the local market dynamics, not to mention the emotional appeal (the X-factor) a buyer may (or may not) feel for your property? It can’t.
To prove this point we analysed the last 50 residential sales here in Timaru – comparing the online estimate with what they actually sold for. (From popular free valuation site www.homes.co.nz)…
The results were shocking.
Only 2 of the 50 were correct. Some were close, but they varied from a whopping 26% Under-valued to 21 % Over-valued. In dollar terms, the worst case was wrong by $90,000. Based on those results, the free online computer-generated estimates were correct only 4% of the time and had an inaccuracy of around plus or minus 25%. That’s $25k high or low for every $100k of your properties actual true market value.
Free Market Appraisal:
Sure, as agents, we are active in the market, should know the local dynamics, what’s most recently sold and what your competition is (other similar properties currently for sale).
However, there are two issues:
Like with anybody else our appraisal is just one person’s opinion.
Secondly, consider for a moment how, as a salesperson, I may have a conflict of interest.
Understand the offer of a ‘Free appraisal’ is actually an opportunity for us to pitch for your listing. If we can’t firstly win your listing, then we can’t collect a fee for helping you sell it. Of course, the easiest way for me to win your listing would be to ‘Quote’ you a high price… or risk losing it to someone else.
Or suppose, in an attempt to win you over, I claimed to be able to get you “$20,000 more” than my competition. Or that my competition was “Underselling Properties”. Although enticing, both statements would be misleading.
For a start it’s impossible to prove that I get $X more. Because it’s impossible to have, what in scientific terms is called a “control” (the exact same property, marketed and negotiated by someone else, with exactly the same buyers in the market, at exactly the same time). It’s therefore impossible to state what price I can get compared to what someone else may get.
Bottom line, free market appraisals cannot be relied upon. Smart sellers understand there is a big difference between quoting you a high price, and actually achieving it. The first is nothing but words plucked from thin air. The second requires a proven process, the right strategy, a plan, and of course the skills to implement that plan competently. More on that soon, but firstly…
What exactly is True Market Value?
In his book, Joe Rand (25yr real estate veteran and industry thought leader) put’s it this way:
Ask yourself: “What will your home sell for in your local market?” The answer: “Exactly what it’s worth.”
Virtually every home in your market sells for its “true price” – what a group of buyers with full access to information about competing listings and comparable recent sales are willing to offer, and a seller with that same access is willing to accept. *(See Caveat)
In other words, True Market Value = Willing Informed Buyer + Willing Informed Seller. *
Further, consider how the basic economic forces of supply-and-demand (in an open marketplace) ensure that homes sell for their true price:
If a seller sets his price too high, his listing sits on the market until (a) the market rises to what he wants, or (b) he reduces his price to the current market level, at which point he’ll start to get offers.
If a seller sets his price too low, buyers will quickly flood him with offers that will result in a “highest and best” bidding war, that will likely drive the price back up to the true market value. *
Sellers can’t overprice their homes because buyers know what other comparable homes have sold for and what else is available for sale. So they won’t be tricked into overpaying. And buyers can’t lowball sellers because in an open market someone else will leap forward to outbid them. *
In summary – NOBODY knows exactly what the true market value of a property is until it’s put to market and sold. At best you can get a professional opinion to budget upon. After that, it’s about getting the process of selling right – your approach to the market – ensuring you extract the most possible from your sale.
*Caveat: Provided the process of selling is handled correctly. Firstly protecting your property’s true market value – by avoiding costly mistakes that needlessly erode your value. And secondly, provided the five tested and proven steps to maximise your sale price are skilfully & professionally executed. For more information on exactly how to achieve that, plus how to substantially reduce your selling costs (maximising how much you keep) – download a copy of this no-nonsense booklet – How to keep the most from the sale of your property