It is very often confused - Real Estate Values or “Prices.” And when you educate yourself on the subject more you gain some clarity on the issue.
After 24 years in the mortgage and finance business there is one lesson I have learned that stands true above most others. The VERY best estimate of the Value of something is simply this: Whatever somebody is willing to pay for it and can and does pay for it. That’s it!
Let’s break this down:
1) Willing - somebody perceives a value for the item, based on their own set of criteria for valuing it, their own “lens” if you will. They love it or hate it, its features, its location, its presentation etc.
2) Can pay for it: Simple here as well. Can they buy it at the price they perceive it to be worth?
3) Does pay for it. If they do buy it, then at that moment you have the absolute most accurate pinpoint value for the item or asset
Now let’s get specific on home pricing and tie it into these 3 items.
Let’s look at it in terms of a process:
My Estimate of Value - a number or range
Can I buy it? - Here is where the complication sets in. If I am a cash buyer of a home, I can pay whatever price I want. It’s my money and I can use it as I see fit. If I am NOT a cash buyer, then I must secure financing, a mortgage or home loan, in order to complete the purchase at my estimated value.
If I borrow to buy, then the rules change. Now, I must follow the money lender’s rules. What are those rules? Quite simple: What this means is that the lending company will come up with their own value of the home, the asset, before they will loan you money based on a home price. So, you can have a contract for whatever YOU came up with as a value, an agreed upon PRICE for the home. But unless the lender agrees with your estimate, you will not get the money to borrow to pay for the home!
They are NOT in any way simple.
In order to get the best rate and costs on borrowed
money, I must follow a set of guidelines laid out by
those with the big bucks to lend.
A large part of this set of rules relates to the Value of the home.
Lenders use appraisals. Appraisals come from Appraisers. Appraisers are certified by a Board that tells them how to value the home. They follow methods that are quite different from your “lens” or your perception of what something is worth. In the end, they come up with a number. If that number matches your number or is higher, you get the dough! If not, you must find alternatives.
We will dig more into the appraisal process in our next feature. You will discover the importance of “comps” on a property. Comps are also what Real Estate Professionals use as a starting point for valuing homes. Comps are important, vital. But they are not everything. So next time, we dive into the world of comps and appraisals. For now, you can view a value comment on a recent For Sale by Owner in Boulder to get some examples of when comps work, and when you need to work the comps!
Steve Higgins is founder of BestFSBO.com and is the author of a For Sale by Owner Help Book and provides a full “FSBO PowerTool” help resource on his Help me Sell my Denver, C Springs Boulder Area or Northern Colorado Home Myself website. Get access to the "PowerTool" by sending Steve a request to Steve@BestFSBO.com
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