How do real estate agents determine market value?

Here is a recent question I got from a frustrated customer who was interviewing me. I thought writing it out as a blog would be beneficial to many sellers and potential sellers.

I have had three different agents come to my house and each have given me a different price! Obviously, I’m going to choose the agent who told me my house was worth the most. My question is, how do you determine the price you will list my home at?

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Great question! It must be frustrating to have 3 agents each give you a different number. I would ask each one about their method for determining price for more clarification. Some homeowners look at their tax card and assume the assessed value is equal to the market value. In most cases, that is simply not accurate. Others look at the prices of similar houses that are on the market. Again, not the most accurate way of figuring out what your property would sell for in the current market.

My method for coming up with the market value of a house is pretty straightforward. I take the perspective of an appraiser. Honestly, 90% of homes out there are financed- and to get financing, the home’s appraised value must meet or exceed the contract price. So, it is very helpful to look at an appraiser’s method for determining value.

One way I explain it is this- if your home was listed and accurately valued at $100,000 and a very solid buyer, who was preapproved for $500,000, came and offered you $200,000 for it- you couldn’t sell it. Why? Because the home isn’t worth $200,000 in the market and the bank won’t lend on it. Now you understand how important it is to get the price right!

How does an appraiser figure out the value of your property? The first thing they do is look at the other homes in your area that have sold recently. They determine if the market is steady, increasing, or decreasing. Homes that have sold within the last six months that are similar in size, age, quality and style will ultimately determine the value of your home. If your agent is using this method and provides you with comparable properties that make sense, their pricing is likely accurate.

That is why it is so important to choose the most honest agent- not necessarily the one who tells you what you want to hear. The market will ultimately determine the value of the home- it is our job to get as close to that value as possible.

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