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3 Ways to Get Home Values Wrong

By Bill Gassett | September 26, 2022

One of the most significant roles of a real estate agent representing a home seller is to provide them with an accurate market value. Homeowners use the information provided by agents to make many financial decisions in their life.

The value received could even be an impetus to whether a home seller decides to move or not. Given the stakes are so high, it makes sense that there should be quite a bit of thought that goes into an accurate home value.

There are a few things that can easily throw off home values. Some of the most common ones include using price per square foot, providing the wrong comparable sales, and using Zillow for an estimate of value.

None of these methods will lead to the right results. Let's take a look at what you need to know.

Getting Home Values Wrong
These Methods Lead to Inaccurate Market Values

Using Price Per Square Foot

One of the easiest ways to come up with the market value of a property is using price per square foot. It is also one of the least reliable.

First, you have to know how sq ft is calculated. So may real estate agents not only get the measurements of homes incorrect but they also don't realize that finished basements don't have the same value as above grade space.

If a home A has 3000 square feet above grade and home B has 2000 square feet above grade and 1000 square feet in the lower level, all other things being equal, home A will be worth much more.

Above grade square footage is worth significantly more than below grade. If a basement has no windows, it is worth even less.

Inexperienced agents place to much value on finished basements all the time. Doing so leads to providing seller's with home values that are off base.

The second part of using price per square foot is having the square footage wrong to begin with. If someone measures a home to be 200 square feet larger than it really is that's going to throw off the value.

Even when the square footage is measured accurately, price per square foot is too rudimentary to achieve market value. The reason is simple - there are far more variables than size that account for market values.

For example, we can look at two houses that are the same size. One house could be in the nicest neighborhood in town and the other could be located in the least desirable area. One home may have all the bells and whistles, while the other was built for someone on a limited budget.

These two homes would be looked at remarkably differently even though they are the same size.

Using The Wrong Comparables

Another common issues that will lead to incorrect home values is using the wrong "comps." Comps are comparable properties. Real Estate agents use comparable sales as part of the process of completing a comparative market analysis. When arriving at market value you need to stay within a reasonable distance around the home. The areas used for comps need to be similar.

The home style is also crucial. For example, you can't compare a ranch to a colonial. That is like comparing apples to oranges. Properties being compared to one another also need to be similar in size.

You can't expect to try to justify the value of a 3000 square foot home to one that is 2000 square feet, even if the 2000 square foot home is much nicer. The size of the homes is just too far apart.

When real estate agents and appraisers put together their comps adjustments will be made up or down based upon characteristics of the subject compared to the comparable sales.

If you have the wrong comparable sales to begin with, the adjustments won't make as much sense. Statistically, the homes should be as close to one another as possible.

Do you want to know why you can speak to 5 different real estate agents and get 5 different values? The two most common is real estate agents using different comps and also analyzing the data differently.

Comps don't lie. The person interpreting the data may not be skilled enough to do so. Some Realtors are great at it, while others constantly have to tell sellers they made a mistake. The seller is then forced to reduced their sale price in order to attract a buyer.

Using a Zillow Home Value Estimate

Thinking you can go online and a computer model is going to spit out the market value of your property is silly. Zillow has never visited your home. They know nothing about it other than the raw data.

If you could use raw data to value a home, there would be no need to have real estate appraisers. They would become extinct, saving home buyers tons of money in closing costs. Don't expect this to happen anytime soon.

You could drop 75,000 into your home tomorrow by adding a top of the line kitchen and Zillow would never know. You might have a 15 foot backyard while all of the other homes have 75 foot backyards. Zillow has no idea this is the case.

Valuing property is an art and a science. While it can be a fun tool to look at and occasionally the value will be close, it is nothing you should use to know what your home is worth with certainty. It is the least accurate method of determining real estate market value.

Final Thoughts

Having an accurate home value is crucial to any home seller's success. The wrong asking price for a home will lead to a home sitting on the market without offers. Eventually it will lead to a price reduction.

Homes sell for the most money when they are priced correctly from the onset. It is always helpful to look at the market data through the eyes of the buyer.

Although it is challenging, try to take the emotional element out of your sale and treat it as a business decision. You will make far better decisions. The best Realtors make their income from being accurate over and over again.

Hopefully, you have a better understand of how to get to an accurate home value.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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