Four Factors that Affect Your Home’s Value
As the positive news about gains in Greater Portland’s housing market begins to spread, more homeowners are thinking for the first time in years about putting their home on the market. When considering whether a sale is worthwhile right now, it is important to consider four factors:
- The three most comparable homes that have sold in your neighborhood over the past six months, adjusted for differences. This is often the only piece of info that sellers use when deciding whether or not to sell. And with good reason – a buyer’s bank appraisal will be based on the recent sales, and if a house doesn’t appraise for the sale price, most lenders will deny the buyer’s loan. To save you the heartache of a fall-through based on appraisal, you’ll need to know your market value up front. There are some online sites and tools that can help you identify recent sales, but the analysis is tough to perfect unless you’re very familiar with the homes that have sold. This is where Realtors and appraisers come in. Since we are members of the MLS, we can easily search the comparable sales, and since we are active in the market, we can also provide insight into the condition of the homes that have sold and the circumstances under which the sales happened. Then we take all of that information and make appropriate adjustments for differences like square footage, condition, location, and amenities, to make an accurate prediction of what the appraised value of the home will be.
- Absorption rate/months’ supply of inventory for your neighborhood. Right now, for one example, the town of Gorham has a 5.2 months’ supply of inventory, which is down 10% from the same time last year. The months’ supply is calculated by dividing the number of available homes in a month by the number of homes that have gone under contract within that month. This tells us that if nothing else comes on the market, it will take 5.2 months for Gorham to sell out of all the available homes. Six months of inventory is considered to be a balanced market – any less is a “sellers’ market” and more than that is a “buyers’ market”. When working with potential sellers, we look at either their town or neighborhood (Portland’s West End is one example where it would make sense not to look at the whole town, but rather the neighborhood) and calculate months’ supply from there. A higher months’ supply of inventory may mean you need to list at a lower price to sell in a reasonable time frame.
- Overall appreciation or depreciation since your purchase. Because a typical market analysis or appraisal only looks back 6 to 12 months, we find it beneficial to trace the history of our clients’ market appreciation and depreciation. As a homeowner, it is helpful to know when values in your market peaked and hit bottom, and how your home is doing in comparison to the market at large.
- The three most comparable homes for sale right now (can you afford to beat them on price?) Even if it looks like your home will have no problem appraising at the price, it’s important to take a serious look at what your competition will be on the market. Are there some really good deals in your neighborhood? What about in other towns that people might consider when also looking at your home? If you can’t honestly say that a buyer will see more value in your home than all of the other options they have, then now may not be the right time to sell. But keep an eye on things, because as inventories fluctuate, there are always windows where the demand for specific home types outpaces the supply. The key is identifying when those opportunities exist, and being ready to list right away.