Determining Market Value

Many people believe that a home value is determine through a comprehensive appraisal before a home is listed on the market. However, the reality is that an appraisal report is not typically used is the process of determining the asking price for a home on the market. Actually, an appraisal is not usually done until the buyer is required to have one done by their lending agent. The listing price for a home is almost always determined by the seller, who is looking to receive the highest sales price possible on their home, or the real estate agent, who receives a commission based on a certain percentage of the sale of the home.

When a real estate agent is preparing to list a property on the market, it is important for them first to set an asking price for the home. In order to get a baseline for this asking price, the real estate agent will perform a CMA, otherwise known as a Comparative Market Analysis. Some states require the CMA to be perform by a certified or licensed appraiser, but in the majority of states allow the real estate agent to do this analysis. This analysis is done by examining the market value and sales price for similar homes in the area. The accuracy of the CMA depends on the real estates agents experience and expertise. The good news is that neither the seller nor the buyer are bound by the results of the CMA. While the agent will most likely recommend a sales price that is close to the CMA results, the seller does not have to agree. The seller can ask for a higher or lower asking price, and the agent may be bounds to follow the sellers request or risk losing a client.

The seller may think that they are getting a great deal on a home, if they make an offer that is 10% lower than the asking price. This may be true, but without knowing the market value it is hard to tell for sure. For example, an offer that is 10% lower than the asking price it not much of a deal if the asking price is 20% higher than the actual value of the home. To make matter worse, your agent cannot tell you that the asking price is substantially higher than the market value for the home. Most states actually require the agent to submit the offer despite the market value or CMA figures.

Sometimes, it is a good idea for the seller to have an appraisal done on their home prior to listing the home for sale. While this is certainly an added cost, it may be worth it in the end. An appraisal can provide the seller with valuable information about the true value of their home. This information can help the seller set an appropriate asking price. The buyer will be required to have an appraisal done if they are applying for a mortgage. The mortgage company wants to make sure the price of the mortgage is close to the actual value of the home. If the appraisal comes back substantially lower, than the buyer will not be able to purchase the home. By having an appraisal done ahead of time, you can avoid this unnecessary setback for both the buyer and the seller.