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Consultation | Market
Analysis
Determination
of Value for Your Home
An
appraisal is an opinion of value, an estimate
of worth. The Federal National Mortgage (FNMA)
states, "Market value is the most probable
price which a property should bring in a competitive
and open market under all conditions requisite
to a fair sale,(whereby) the buyer and seller,
each (are) acting prudently, knowledgeable and
assuming the price is not affected by undue stimulus.
The value of residential real estate is estimated
by comparing the subject with similar properties
that have been sold recently. Look at your neighborhood
to find comparable sales or properties in similar
neighborhoods that share similar characteristics
of lifestyles, income level of residents, surroundings,
average age and value of house.
Neighborhoods:
Neighborhoods have boundaries and barriers to
the best neighborhood which may signal an abrupt
change in lifestyle i.e. railroad tracks, freeways,
highways, major traffic arteries, lakes, rivers,
mountains, etc. There are political boundaries
created for government purposes, such as school
districts, assessment districts, zoning districts
and city limits. In your neighborhood analysis,
you may consider recreational facilities common
to your situation. The focus is to find comparable
homes in similar neighborhoods for your analysis.
Comparisons:
The best way for determining the price to set
for a given property is to base that estimation
on the fair market value comparison. The fair
market value comparison approach uses the principle
of substitution. That principle states that the
maximum value of your house and property tends
to be set by the sales price of an equivalent,
equally desirable, similar substitute house and
property, for a certain day in time. Find 3 or
more homes that sold recently having amenities
and characteristics similar to yours.
Because
properties are seldom alike, it will be necessary
to make adjustments between the comparable properties
as compared to the subject property (your property).
This process equalizes the properties in the comparison.
A good definition according to a leading appraiser,
Ventolo and Williams, states that an adjustment
is a "decrease or increase in the sales price
of a comparable property to account for a feature
that the property has or does not have in comparison
to the subject property.
In other words, the comparable properties are
adjusted to reflect the value of the subject property.
You never adjust the subject (your own home).
If two houses were identical in every way except
that the subject (your house) had a deck and the
comparable did not, the value of the comparable
would be adjusted upward.
By
this method, the subject (your house) reflects
more value when compared to a comparable house
with deficient items (such as no deck or no garage).
Always remember: comparable sales must be adjusted
and not the subject property. The Federal National
Mortgage Association (FNMA) puts it this way:
"The subject property is the standard against
which the comparable sales are evaluated and adjusted.
Thus, if an item in the comparable property is
superior to that in the subject property, a minus
(-) adjustment is required to make that item equal
to that in the subject property.
Conversely, if an item in the comparable property
is inferior to that in the subject property, a
plus (+) adjustment is required to make that item
equal to that in the subject property. In other
words, if a comparable sale property has a major
improvement that your property does not have,
make a minus adjustment. On the other hand, if
you enjoy a major improvement and the comparative
sale property does not, make a positive adjustment.
Round off adjustments to the nearest $100.
There
are four basic phases involved in this approach:
- Recording and analyzing data
from your property and potential properties
- Selecting the appropriate comparable
data
- Developing reasonable adjustments
based on market data
- Applying your findings to the
subject (your property)
Concentrate on finding comparable sales that have
characteristics similar to those of your own home.
A variety of these parameters are listed below
in descending rank of importance, the first listed
being more important than the last listed.
Categories of Compatibility:
- similar neighborhood
- total square feet of living
space
- number of rooms, bedrooms,
baths
- sold preferably within 4 months
- sales price within general
market price of your home
- sales or financing concessions
- location
- quality of construction
- style of house
- age of house
- condition
- square footage
- property site and view
- functional utility (deficiencies
or overbuilt features)
- number of garages
- swimming pool, fireplace(s),
remodeled kitchen, kitchen equipment, etc.
- storm windows or replacement
window or thermopane windows
- basement i.e. finished, unfinished
or none
- deck, patio, porch, etc.
- landscaping
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