How to Value a Property [Market Value of a Property]

How to Value a Property [Market Value of a Property]

00:00 How to Value a Property [Market Value of a Property]
00:33 1. What Does Market Value Even Mean?
01:14 2. What Are The Steps In Working Out The Value Of A Property?
01:18 3. Step One: Comparative Sales
02:16 4. Step Two: Needs To Be Comparable
03:25 5. Step Three: Superior Or Inferior?
04:28 6. Step Four: Adjust For Market Movements
05:13 7. Comparing Apples With Apples
05:40 8. Listening To The Agent
06:07 9. Not Using The Data

Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or FMV. Similarly, anyone who has to pay taxes on a property or take a property-based deduction needs to find the FMV. Incidentally, this is also common terminology in the investment real estate market. Unfortunately, there is no easy or universal way to determine market value for real estate. However, nearly every market valuation comes down to two factors: real estate appraisals and recent comparable sales.

Economics of Market Value
The value of every good in a market economy arises out of a discovery process. Producers and resellers propose hypothetical values and hope to find buyers with similar valuations. On the other end, consumers bid up or push down prices based on their changing interpretations of the value of goods. This process is imperfect and ever-changing.

For real estate, this means a buyer must value the property more than the money he is trading for it. At the same time, the seller must value the property less than the money offered.

Appraisals and Comparable Sales
Appraisals are simply professional opinions of value. During a home sale, the bank that makes the home loan normally selects an appraiser to render an opinion about the value of real estate as of a specific date. Comparable sales, also known as the "market data" approach, is the most common way to arrive at market value. Here, the recent sales of properties of similar stature are reviewed to inform judgment.

Here’s the thing: Did you know that there are two potential values for your property?

Unfortunately, many homeowners don’t understand the difference between a market value and a bank value but it’s vitally important that they do.

In fact, sometimes when a homeowner wants to draw on some of the equity in their property, they get a shock when the bank valuation is lower than the market value that they had calculated in their head.

So, why does this happen? How can two “values” be so different for the same property?

This article will outline why market values and bank values are not necessarily the same thing, so you don’t get a shock the next time you go to refinance.

So, what is market value anyway?
Market value is essentially the price that the market is prepared to pay for your home.

A more formal way of putting it is: “The highest estimated price that a buyer would pay and a seller would accept for an item in an open and competitive market.”

The main thing to understand about market value is that it generally relies on emotions to drive up the price.

A great example of this is at auctions where buyers often get carried away with the competitive environment and end up paying much more than their budget to “win” the property.

Likewise, when a market is hot, then buyers can have FOMO (or Fear Of Missing Out) and end up paying too much for property.

It’s impossible to say what a property will sell for on any given day, but by researching comparable sales, homeowners can get an idea of what the market value may be.

But why is a bank valuation different?
So, where market value can be impacted by human emotion, a bank valuation is purely a numbers game.

Bank ValuationThat is, a professional valuer, will complete a valuation on the property without any emotion whatsoever.

The valuer will physically assess your home as well as comparable sales to arrive at a value which he or she believes the property would sell for at that moment in time.

The main point here is that a bank value is generally lower than market value because of its objectivity, lack of emotion, and tendency to be conservative.

Of course, this can be annoying to anyone wanting to refinance to access equity or for buyers who have to come up with a bigger deposit because banks will only lend a percentage (loan to value ratio) of the bank valuation not the market value.

Can you influence the valuation of your property?
The answer is yes and no!

That’s because, just as you can improve the sale price of your property by making sure it looks its best, the same goes when it comes time for the bank to value your home.

You should ensure your property has had any necessary cosmetic updates completed, such as a fresh coat of paint and landscaping, so the valuer enters your home with a smile and not a frown on his or her face.

Видео How to Value a Property [Market Value of a Property] канала Mortgage Broker Brisbane - Hunter Galloway