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
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
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
Size of lot and its topography or
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
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.