What is Value?
From the buyer’s mind: this house that we are about to write and offer on…what is it worth? The list price is $700k, Zillow and Redfin say it is estimated at $685k and my Real Estate Agent is telling me that if we want to beat the other three offers we have to write at $725k+. It is a lot to process especially if the deadline is looming. If you’ve been IN the market and touring for a while, the burden is reduced, but still a lot to consider.
This is how I explain “value” to buyers. To start with, every house is it’s own freestanding unit with a multitude of factors to consider. The most important are: location, square footage + layout, lot size and updates. One thing that is tough to quantity is “vibe”; when you feel it, you don’t feel it and it cannot be forced.
We always start with the comps; the geographically closer and more recent sales are the best indicators. It is pretty rare to find the perfect, directly comparable property, but as a group they always tell a story on value. The online valuations are often kinda close, but a big disclaimer is that they will adjust to the list price when the house hits the market (at least that was the case the last time I looked into this). In the Portland Metro Real Estate Market, price per square foot calculations just don’t work and I put zero stock in this.
The next stop is the competition. If this is a competitive situation, check this VIDEO and BLOG to hear my two pennies on that. When there are other offers on the table, we’ve got to put the comps aside and have a bigger philosophical conversation that I’ll get into in a sec. If the house has languished on the market for months there is a larger opportunity to get the price and terms that suit you best.
Regardless of all the data presented, the big question is: what is it worth to you? Value is ultimately in the eye of the beholder and once you’ve toured a dozen+ homes as a buyer, you are going to have a really good sense of that. At the end of the day, the monthly payment is what you are stuck with, so it is good to run the numbers with your lender. In a few years you might forget the exact dollar amount that you paid for the place, but you’ll always remember your monthly payment!
A note on appraisals. Technically, the appraiser is the person who attaches and actual “value” to any property. They are doing a third-party valuation of the home for the lender. The way that the appraiser looks at the house is much different than how a Realtor or buyer sees it.
In conclusion…what is value? It is this weird nebulous thing that is never fixed and ultimately determined by the market forces of supply and demand. It is worth what a buyer is willing to pay for it.