MARKET VALUE

The formal definition of market value is the price that a willing buyer without undue influence will pay for a product in a free, open market. Market value in residential real estate is generally determined by comparison. Buyers look at the homes available, make their own personal decisions about preferences, and then look around to see what prices should be. Agents then deliver information on sales of comparable properties with notations about additions and subtractions for larger, smaller, nicer, lesser, location and other effects. Finally appraisers bring their calculators to the task, studying what price per square foot has sold in the most “like” properties, adding and subtracting on dollar bases for various items, and generating a good or not so reliable (they are rebuttable!) professional opinion of value on which the lender relies.

There are always outliers. Those homes that for no reason other than the buyer’s about-to-be-ex-husband was required to buy her a home and she didn’t care how much she paid. Those homes that the owner needed to let go immediately to race to surgery or Detroit or such. But generally buyers, agents and appraisers are influenced by the “norm”, that statistical average of what the market is doing and their personal thoughts about where they believe the market is headed.
There’s an important lesson in this truth. There is no such thing as a $5,000 exact price. If a transaction falls apart because the parties cannot enjoin a $5,000 difference, at least one of them didn’t want the deal. This is the point where a party’s true feelings at last come to surface. And paying an additional $10,000 or $20,000 or such is generally negligible in the scheme of things. At 5% annual interest that is $83/month on $20,000. NOT the deal breaker it looks like. Only over the gain or loss, will it take on impact, or not.

Elements of value are important however, in that they can make a “buy” for a buyer or a “good price” for a seller. Essential items to keep in mind are:
  • Value of the community/neighborhood
  • Schools, services, shops and parks nearby
  • Size of lot and its topography or usefulness
  • Square footage* of the improvements (house, and other buildings)
  • Condition is generally managed by using comparable $/sf of other premium properties for premium listings and fixer $/sf for other fixers and in between $/sf for other in between properties.
  • Then additions and subtractions are estimated for particular craftsmanship or amenities, but again in a very subjective manner.
  • Noise has become an increasingly high impact negative.
  • Light and cleanliness adds more than one can always justify.
*Square footage in San Diego is done by appraiser practice. Homes are measured on the outside and include closets and stairwells (although the second and third stories of the stairs are subtracted) and wall space. We do not measure “livable” or “occupiable” or “rooms”. Garages are NOT included, nor are open porches or unfinished basements and attics.