There are a number of ways to value your home and several factors to consider. In general, the most important factor is the prices of recent sales in the area. There are three primary tools to consider:

• Comparative Market Analysis
• Seller’s Market Update
• Appraisal

Seller’s Market Update

Perhaps one of the most valuable tools available when determining a homes value is the Seller’s Market Update (SMU). This tool is a very simple solution that shows the active properties in the area along with the recent sales. The objective is not to determine a specific price by comparing to a few comparable properties but rather to analyze what’s happening in the general area in an effort to understand where the market stands.

The Seller’s Market Update can be used for any type of property that has other that are in some way similar. It is effective for single family homes, condos, townhomes, and even raw land. It can also be used to analyze the rental market.

Typically all similar properties that have sold in the previous six months are listed along with those that are currently available in the market. Each property should include the sold or listed price along with the number of square feet and a price per square foot calculation. When ordered by price per square foot, the sold properties typically will separate from the listed properties and quickly show where the market exists.

These properties are all in the same condominium building in Ormond Beach, FL. In this example, the recent solds are highlighted in green in order to distinguish them from the active properties. They are not exactly alike and each will have customization according to the owners. However, you can see that the sales and actives are distinctly different in terms of price per square foot. Where that break exists is the market for this building.

Advantages

By taking a more comprehensive view of the area, the tool tries to determine where properties are selling. Rather than comparing feature by feature as is done with a Comprehensive Market Analysis, an SMU can be used to compare what has sold with what is available to determine what the market will bear. There is room to make adjustments which prevents personal bias or opinion from clouding the result.

Disadvantages

The SMU works best on homes in a subdivision which typically has homes of similar style and age, often with the same or similar builders. It is also very effective for pricing units in condominium buildings. However, there are some properties that truly are unique. When there are truly no similar properties in the area an appraisal is a much better solution for determining value.

One of the greatest advantages of a seller’s market update is the unbiased results. However, without the ability to adjust for features, it is more difficult to get an exact price. An SMU can help to determine where the market is for similar homes but it can not provide an exact value.

The SMU uses a very focused approach. In most cases price per square foot is the best metric as it is a great equalizer. There are some cases where other metrics are more effective such as price per acre for large land parcels or price per front foot for oceanfront and riverfront land. However, in all cases the use of a single metric can be myopic and miss important features that can effect value.

Summary

A seller’s market update is an incredibly valuable tool that helps determine both the sales price and current trend for a market or sub-market. It should be created anytime a price needs to be determined or validated. It is not the “silver bullet” of pricing but is an absolute necessity in order to validate price determined by other methods.

Next in this series will be an examination of the third tool for determining value, the appraisal.