Nice Place, but What's It Really Worth?
Saturday, April 18, 2009
You don't want to overpay for that three-bedroom, two-bath house. But the similar one down the block that sold last month was a foreclosure, and not a lot else has changed hands recently in the neighborhood.
So how do you figure out how much to offer?
The people whose job it is to determine what a home is worth are finding the market challenging, too.
"I've been doing this for 23 years and haven't seen anything quite like this," said Bruce Flanagan Jr. of Flanagan Associates in Bethesda. Real estate agents are even calling for his help in figuring out the proper list price for a home, he said.
When determining value is difficult for even the people who do it regularly, it's a good idea to look at what the pros do. Appraisers usually determine the value of a home by examining recent sales of comparable homes -- that is, homes that are in the same neighborhood and roughly the same size and quality. In a challenging market they might expand their search to include less-similar homes or those that are farther away.
For these homes, they gather points of comparison. How big is the above-ground living area? How many bedrooms and bathrooms? Swimming pool? Finished basement? Parking? For a condo, what floor is it on?
Homeowners can generally get information about what has been sold and listed recently online or from real estate agents. John Brenan, director of research for the Appraisal Foundation, recommends working with agents who are knowledgeable about the area as well as doing your own research. If you're not sure what's going on in a market, call the brokers whose names are on for-sale signs and ask them for data about how many homes have been listed in the past year, average days on the market and median list prices.
"There are tremendous opportunities in a down market for a buyer, but they have to be prepared to do their homework," Brenan said.
Nicole Harkin and her husband, Brent Lattin, are doing a lot of their own investigating as they search for a house in the District. They have been looking on and off for about two years, don't want a condo and don't want to pay more than $650,000. Harkin and Lattin check the city Web site to see what a house's past owners paid.
"The way we determine whether or not we would buy a place is more looking at what the value of the house was in 2003, because it just seems somewhat ridiculous that prices went up as high as they did," Harkin said.
That approach may work in some instances, Flanagan said, but it's impossible to tell whether a house is at its 2003 price, its 2005 price or just its 2009 price, except in retrospect. The best way to determine value, he said, is to follow appraisers' methods in looking at comparable sales.
An appraisal is designed to reflect the value of a house, not set it, so basing an offer on one doesn't mean that your house won't gain or lose value. "It's basically what the house is worth on the day we walk through it," said Gary Denny of Woodbridge Appraisal, president of the Northern Virginia chapter of the National Association of Independent Fee Appraisers.