The value of your home

Your home is your castle and in some instances also your piggy bank. It is natural, therefore, to want reassurance as to the value of your castle. How do you get this reassurance without selling your home? How do you know when you're living in, or have invested in, a 'good' neighbourhood?

Living up to the Joneses
Is it the advertised prices that help you put a value to your home? Do not compare your home to the Jones' home for sale next door. Asking price is not the same as value. Doing a direct comparison between Mr and Mrs Jones' asking price and your home is probably the biggest factor that will contribute to an inflated sense of the value of your home. The advertised prices and realised prices are often different. In some cases this discrepancy can be as much as 30%.

Human nature is also such that people feel that what they have is just that bit better then anyone else's. Your kitsch taps and cute garden gnome are not good reasons for your house being worth more than the neighbours'.

This would seem to be a good place to find out what your home is worth. After all, the bank really carries the risk on the value of your home anyway. Banks use professional evaluators to assess the value of your home. They then use this value to help determine the amount they will lend to you with the home as security. Unfortunately banks do not usually give you this figure. The evaluators report is used primarily to determine if there is enough value in the property to provide security for the bond they will grant. You could try asking the bank for an exorbitant amount and seeing what they come back with being willing to finance. This method is less accurate because your risk profile also determines the rate and amount of the bond.

Estate Agents
Estate agents use a Comparative Market Analysis (CMA) to derive a valuation for a property. They do this by researching the realised prices of sold properties of similar houses in the neighbourhood. The realised prices are the recorded prices at the Deeds Office of historical sales over the previous period. This is NOT the same as the advertised prices. In fact, they are normally about 10% below the advertised prices.

As this is purely a rear-view mirror perspective of prices with a lag of up to 6 months due to the nature of this historical information, a good agent will also take into account current trends. They will know which properties are for sale and at what price and knowing the historical difference between the asking and sold price of the previous properties they are in a good position to determine what these houses will probably be sold at and hence determine the value of your home. Some adjustments are made for special features or lack thereof in your home and this comparative price is remarkably accurate.

Obviously the second method seems to be better than the first. This is only true, however, when you are dealing with an agent that does their research and knows the area. Beware also of agents inflating the value of your home due to ignorance or in an attempt to get a mandate to sell your home. The recent flood of new agents and agencies has introduced a component of inexperienced agents into the market so choose the agents that you deal with carefully.

The true value
Normally the number of properties for sale in one specific area will detract from the value of an area due to creating a perception of people leaving an area and supply and demand market dynamics.

A complex near me recently had a number of homes for sale. One was due to a couple retiring and moving away. What transpired was a very good way of determining the desirability if not the actual value of homes in this area. Another couple, looking to renovate and expand their own house in the complex happened to walk into a showday being held by the original seller and decided to forego the building nightmare and purchased this home. Their home was now for sale and a showday was held. A third couple in the complex wandered into that showday out of curiosity and purchased the second home and their home subsequently went on show. The third home was sold to an outsider. A chain of three homes being sold with two of them being bought by 'insiders' was created.

This was a great endorsement of values in that complex. When people that live there do what they can to stay there and snap up the properties before anyone else can do so, it's an indication of a desirable neighbourhood. This unusual chain of sales was also due in no small part to a excellent and thorough estate agent that correctly helped the owners price, market, sell and buy all these homes. When I want an accurate value, this estate agent will probably have the best knowledge to determine an accurate value for my home.

Article by : Dave Welmans - (