There are 2 major ways in which agents establish the value of your property. Firstly, they use CMA or Comparative Market Analysis method; and secondly, the comparative cost method. There is a third method, which uses the income as a method of establishing value, but this is mainly used in commercial or investment properties. The first method is the most accurate, given that it is the price that other comparative houses in the area have achieved in the recent past. No to properties are alike though, so this should only be used as an indicator.
A spec-built home, which is a home built with the express purpose of resale, has to be evaluated based on the cost method. The value of the home is determined directly by the cost of building. This method unfortunately doesn’t take into account that a home is actually only worth as much as the buyer is willing to pay for it at that time, which means that the seller could be in for a quick and painful lesson!
Be careful that you’re not overly influenced by the highest valuation offered by the agent. Some agents will give you a higher valuation in an effort to secure a mandate to sell your home. Remember that the lower valuations might be more realistic. Ask the agent for a justification of the value that is given to you.
You probably also have a gut feel for what you think your home is worth. This is natural, but it might be misleading. You’ve no doubt based this value on a number of influencing factors, which include the cost of buying, your renovations, and a comparison with other properties in your area. The price that you paid to build or buy this home is not a factor that is likely to influence the selling price, since potential buyers are not interested in this. Also remember that advertised prices for houses are not necessarily the final price at which the home will be sold – it’s usually 10% below the advertised price.
When valuing your home, don’t underestimate the wealth of the experience that a good agent can bring to this exercise. The most important element should be a comparative market analysis or CMA of other homes in your area.
If possible, get the agent to give you area statistics. This will help you to shape your expectations when selling your house by seeing what has actually recently been sold in your area.
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