What's a property worth???

that most people thinking of selling are asking, "What is a property worth?" Or more specifically homeowners often ask, "What is MY property worth?" Putting a value on a piece of real estate can be both a science and an art, depending on who you ask. The value of a property (or anything for that matter) is in the eye of the beholder. The price of a piece of property might come from your tax assessor, a recent appraisal, a Realtor market analysis, what the home seller wants for the property, or what the buyer wants to pay for the property.

Every year in Wisconsin, tax bills are sent out to homeowners with their latest property "values" and corresponding property taxes due. An assessment from the city of Madison or Fitchburg (or wherever you live) is one opinion of value. One buyer that I spoke with over the weekend asked me, "why is the list price so much higher than the assessment?" In many cases, the tax assessment tends to lag behind the market value. Over time properties tend to appreciate in value and an accurate assessment (equal to the market value) may only occur every few years. Also, if a property had an addition, or is new construction then the assessment will likely change drastically. Conversely, a fixer upper in rough condition tends to be "worth" less than the assessed value. Another thing to note is that depending on the township, the assessment may be purposely set far below the market value. For example, according to Dane County 2007 tax rates, the Village of Oregon has a 74.82% assessed to market value ratio while McFarland is 86.78%, and the City of Madison is 97.58%. While a property's tax assessment does not give a 100% accurate picture of the true "value", it does help give a ballpark figure to most people.

An appraisal is another opinion of value that home buyers or sellers use to determine what a property is worth. Anytime a property is sold or refinanced with a mortgage lender, an appraisal will often occur. Although, keep in mind that this is only one opinion and may or may not be accurate in today's market. In fact one lender I spoke with recently told me, "that some recent appraisals are tagged if they are in declining markets and discounted 5%. Just make sure on your current transactions that you're not in a declining market." I recall some stories of people refinancing every couple of years and taking out large amounts of their "equity" to pay for things. In a sellers market with appreciating values, there is little risk because the "value" quickly rises to the amount owed. However, this year the market has shifted to more of a buyer's market and in some situations home sellers might owe more on the property (on their mortgage) than it is "worth".

Another opinion of value might come from Realtors in a Competitive Market Analysis (CMA). Realtors have access to a lot more information than most people about pricing, yet many agents can come up with a different "value" of the same property. I have had situations where I meet with a prospective home seller that really believes that their property is worth a lot. Of course, their property, "is the best on the block and clearly worth more." I don't mean to discount the idea that properties in good condition tend to sell for more money, but what amazes me is that many properties that are currently for sale will not sell. Well, they will sell, it's just a matter of when. In the 4th quarter of 2007 there were 2531 single family homes for sale and only 820 homes actually sold during that 3 month period. That comes to about 273 homes sold per month. If only about 10% of all the homes currently for sale are actually going to sell in a given month, then it seems like a potential seller would want to figure out how to become one of the next 273 homes.

Then of course there is the buyer's idea of value. I have found that many buyers tend to look for homes in a certain price range, location, and then with certain amenities (ex: 3 bedroom, 2 bath, 2 car garage, about 2000 s.f.). Many home buyers today are more savvy than previous generations because there is more information than ever before. Realtors are no longer the only ones with real estate information. However, the longer I am involved in real estate the more I realize that the right knowledge is what truly matters. Many of today's buyers are searching for the best value, which means that overpriced properties for sale typically don't sell. Value can give a buyer many different things depending on where they are looking. For example, east Madison prices vary compared to West Madison, Downtown, or within 30 minutes. In Dane county the average sales price in the 4th quarter was $278,488 and that amount can purchase a drastically different property depending on your wants.

Ultimately, a property is worth what a ready, willing, and able buyer is willing to pay for it at any given moment in time. In today's market it makes sense for a seller to look at a number of opinions of value to make an educated decision about pricing in a competitive market. Tax assessments, mortgage appraisals, and even Realtor CMA's (competitive market analysis) can vary dramatically in their opinions of value. Do your homework and find someone with good information to help you through the process if you need to sell your home.

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