Would you like to estimate your property's market value, but aren't sure how to go about it? Here are a few pointers that'll allow you to determine its market value, and factors that will influence this amount.
What is market value?
Understanding market value
Market value is the price at which an asset or product would be sold in a competitive and open market. It serves as a reference for assessing the value of an asset or investment. For real estate, the market value of a home is the estimated price that a property would currently sell for on the market.
It's dictated by supply vs. demand and other economic forces like interest rates and inflation. Factors such as the asset's perceived value, its condition, competing assets, as well as the location, size, age, condition and comparable sales of similar properties in the area also influence market value.
Market value helps buyers and sellers understand the fair value of a property and make informed decisions when buying and selling real estate.
Applying market value
Market value is useful when setting property sale prices and negotiating the purchase price, as it provides an estimate of the property's current value based on comparable sales in the area. This information can be used to correctly calculate the price of a home without overestimating its value and losing buyers' interest.
Market value is important to the negotiation process because sellers can use it to justify their asking price, while buyers can use it as a point of reference to put together a fair offer.
Knowing the market value is the best way to estimate potential gains and financial risks, because it gives an idea of the property's appreciation or potential depreciation over time.
It can influence the amount that a buyer is willing to pay for a home, and thus the rent or mortgage payments on the property. What's more, it enables you to identify risks related to the current economic climate and housing market trends.
By following this indicator, homebuyers can get an overview of market trends and potential opportunities.
Identifying the factors that affect market value
1. Supply and demand
Supply and demand largely affect the market value of real estate. Prices rise when there is a high demand for homes and limited supply. Conversely, when demand for homes is low and there is excess supply, prices fall. Factors contributing to supply and demand include the state of the economy, population growth, interest rates and the number of new builds.
2. Intrinsic characteristics
Keep in mind:
Location
Square footage
Age
Condition
Number of bedrooms and bathrooms
Lot size
Views from the property and proximity to a body of water
Improvements and work done over the years
Driveway or garage
Facilities such as a pool, hot tub, deck and outdoor firepit
How can you find out the fair market value of your property or a property you're interested in?
There are 2 main methods to assess the market value of a home: a comparative market analysis and a cost approach. You can use these methods yourself.
A comparative market analysis is a real estate valuation method that consists in evaluating the selling price of comparable properties in the same area to find out the property's market value.
This method involves analyzing similar properties in terms of size, location, age and features. It's often used by real estate brokers to guide sellers in pricing a home correctly and enable buyers to negotiate a fair price.
Instead of focusing on the prices at which other similar homes in the area are selling, the cost approach estimates a property's value by calculating how much the building would cost today if it were destroyed and had to be replaced. It also takes land value and age into account to calculate depreciation.
The expert's role in assessing market value
Real estate valuation professionals play an essential role in determining the value of a property for a purchase, sale or refinancing.
Their areas of expertise include analyzing market trends, assessing the condition and location of a property, surveying local zoning laws and regulations, and conducting extensive research on the property and its surroundings.
Their appraisal reports allow clients to make informed decisions and provide lenders with valuable information for underwriting loans.
Calling on a professional to do a property assessment is important since they can help you determine a property's true market value. You'll be more likely to avoid overpaying for a home or buying a property that's undervalued.
A real estate appraiser also identifies problems or potential defects in a property that may not be easily detected, preventing the buyer from incurring unexpected expenses after a purchase.
In addition, real estate appraisers provide a detailed report that facilitates negotiations and informed decisions about whether or not to purchase a property.
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