Price, Value and Cost: Components of a home’s worth
BY World Special Publications
Monday, August 20, 2012
Proper research is essential for home buyers. You should be familiar with the steps in a real estate transaction and additional details that are related to property sales. You also should know what your physical and financial needs are.
Hiring a real estate broker is a great idea as well. These professionals can help you understand the market, project your requirements onto the search and ensure the home you select is a worthwhile investment. In a recent broadcast of “Eye on Real Estate with Dottie Herman” titled, “The Art of Negotiations,” Herman, the CEO at Douglas Elliman, discussed some important aspects regarding a home’s worth. The conversation focused on the differences between price, value and cost.
Price
When deciding if a property is priced correctly, Herman said, “price is what the home should be worth today. But sometimes people don’t price it right, so what you really want to look at is fair market value.” This is what the seller should reasonably be requesting.
Recently sold properties are used to help determine fair market value. These sales should be recent, preferably within the last six months, and should be similar in size and upkeep to the property you are considering.
Unfortunately, this Comparative Market Analysis, or CMA, may not include all of the details. The current condition, location and surroundings, as well as the view from the property, can all affect the price of a house. Make sure your broker includes details like these in the CMA. Appraisals can also help figure out a home’s fair market value, but Herman said, “There is no exact science to pricing.”
Value
The value of a property is established by the prospective buyer. Herman states that, when it comes to value, “it’s an opinion of what you think the home is worth, based on how you’re going to use it.” Value is calculated based on a person’s lifestyle, so it is different for everyone. For example, a home near public transportation could be more valuable for someone who does not drive than it would be for someone who does.
Cost
According to Herman, sellers believe a house is worth what they paid for it plus how much was spent on improvements and other things. In reality, when a seller improves a home, the value of the property is increased, not the cost. Since value is based on the buyer’s preferences, improvements and other extras are all subjective. A seller could receive dissimilar offers from potential buyers because they have made personal decisions about the home’s value.
Buyers and sellers need to remember that the CMA is just a starting point and that value and cost are both subjective. All of these details need to be discussed with your broker, and every property needs to be closely inspected to make sure it aligns with your needs and your budget.
Courtesy of RISMedia
Associated Images:
It's important to know the difference between price, value and cost when selling your home. Denis Vrublevski/Shutterstock
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