In our recent real estate reads, we came across a topic that we have not covered in some time, that is surely worthy of every buyer and seller’s attention today: pricing linguistics. You have no doubt seen on our website that we offer complimentary home valuations for anyone who wants to know what their home is worth in today’s market. You may wonder how this number varies from the figure that comes up when you ‘price’ your home on Redfin or Zillow, and how that data differs from what an actual appraiser would assign when calculating your home’s value for a lender. So, here is our Homes of Silicon Valley breakdown on breaking out various concepts of price…

THE APPRAISAL

Have you ever wondered why the appraisal happens so ‘late’ in the home buying process? After all, wouldn’t it be easier if the seller just got an appraisal first and then charged the buyer that amount? The truth is that the appraisal is the value of the home as seen by the buyer’s lender. The appraisal must be ordered through an appraisal management company that the lender chooses (there are very few cases where an appraisal is even portable from lender to lender). The appraisal is paid for by the buyer, with the intention of verifying the condition of the home and ensuring that the potential new homeowner is not borrowing more than a certain percentage of what the lender deems the home to be worth. Appraisals also include a review of historical changes to the property and will only assign actual dollar value to permitted additions (i.e. square footage of permitted additions will not be counted when analyzing a cost per square foot). Appraisers do use comparable sales in their calculations, however, how familiar the appraiser is with the actual neighborhood and community will impact the accuracy of the comparable chosen.

THE MARKET VALUE

Just as the appraisal is the ‘bottom line’ of the home’s value to a lender, the seller should be most concerned with the home’s market value. The market value does take into account what comparable homes are selling for, just as an appraisal does. However, the main difference is that demand and inventory play a huge role in a home’s market value. Market value is largely influenced by emotions and recent sales, whereas an appraisal is data and formula based only. The state of the market is another huge driving force of a home’s market value. Are there few single-family starter homes on the market in your neighborhood? Is your floor plan highly sought-after and rarely seen? Are interest rates are extremely low and are buyers desperate to get in while they can maximize their purchasing power? When we conduct a home valuation, these are the types of questions we will take into account – as well as your home’s actual condition, exact location in your community and other data points that are unique to your property and scenario. Ultimately, what someone is willing to pay (the market value) can be very different than what the bank is willing to lend on (the appraised value).

NOTE: Please do not assign the same level of accuracy to the home valuation of a real life, local real estate agent to the figure you get in a search bar on popular real estate websites. That figure is calculated using algorithms of public records and has no way of knowing the condition of your home, the desirability of your floor plan and location and so much more. Read more on ‘THE PURE ENTERTAINMENT VALUE OF A ZESTIMATE’ here.

THE LISTING PRICE

Now that you know the difference between the appraisal and the market value, where does the listing price come into play? The listing price is a combination of what the appraised value is expected to be, what the market value is based on your agent’s home valuation and the strategy that you and your agent choose to employ. Variations in list price are not often the game that they used to be. (Remember the days of listing low to see how high everyone would go outbidding each other?) Lending standards, data transparency, inventory levels and rising home prices have moderated the way that the ‘listing game’ works. There is typically a range that your agent will suggest around the market value that represents a variety of strategies you may employ, based on your timeline, your desired net profit, your anticipated buyer pool and who your competition is.

With education at the forefront of how we empower our buyers and sellers, please do not hesitate to reach out with any questions, any time. For our buyers, we readily position your home search around your pre-qualifying amount, desired home type and will present you with strategies on how to proceed when the appraised value and market value differ (it WILL happen). And if what you want is not on the market… ask us how we can help you find it anyway!

For our sellers, we pride ourselves in not only our record of results, but our intimate knowledge of Silicon Valley micro-markets as the foundation for a listing formula that truly makes sense and cents for you.

If you are thinking of selling, there are many benefits to listing in the fall. You don’t have to wait for that blog… please reach out today and we’ll walk you through them!

All our best,

Mark & Sarah