How Much Is My Home Worth? How to Determine Property Value. Sold how much OVER Asking Price?

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With the real estate market all over the news, you are wondering, “What is the value of my home now?”

I just recently looked up the value of my own home, and let me tell you, it was a very nice thing to see. So, today I want to go over two things with you. First of all, what can you do yourselves to find out what the approximate value of your home is? Secondly, what are professionals doing to actually pinpoint the value of a property accurately?

At the end of the video, I also want to show you how much people have paid in 2020, over asking price or under asking price. If you’re wondering if that is more like $2,000 or $20,000 stay tuned. The answer will surprise you.

If you have not looked at the value of your home recently, you might be pleasantly surprised when you find out, because home prices in and around Milwaukee have gone up substantially. The median sold price for a single family home in Milwaukee County, for example, has gone up 10.2% in the last 12 months, according to MLS data.

Now, we have seen increasing home values now for a while, but 2020 has set a new record on annual increase. If the first weeks of 2021 are a good indication for what’s ahead of us, we will see a continuation of that upward spiral, which is driven by increasing demand coming from a demographic shift that we are seeing, and very limited supply, because we only have the houses that we have in Milwaukee.

Home pricing and appreciation are surprisingly difficult and complex topics. This is why so many are struggling with it. It’s relatively easy to give an average appreciation for a larger area, but then when you zoom into smaller segments, you find that it’s increasingly difficult to pinpoint the value of a property, because it will vary by neighborhood. It will be completely different by price point, and it will even vary by property type.

So, for example, if you look at a $250,000 single family home in Menomonee Falls, that can behave differently from a $400,000 condominium in the Third Ward, and completely different from a $750,000 residence in Mequon. So, you really have to understand how these individual sub markets are driven. They might have somewhat different dynamics, and you really have to understand those to come to a meaningful result.

Generally speaking, when you look at the Milwaukee area market of last year of 2020, you can see that the strongest appreciation happened in the market below $300,000. This is the market where all the millennials, which are now first time home buyers are flocking into. So that market is becoming very crowded and very competitive.

Now, what we’ve seen in last year in 2020 for the first time, is that these sellers that are selling these under $300,000 houses, they’re typically going into the $300,000 to $500,000 segment. So what I’m seeing this year is that this segment is now also becoming more competitive.  There is a cascading effect going on. What we have not seen yet is that competitiveness has not reached the luxury segment over 700 or $750,000. That is at the moment, the least competitive segment.

Regardless which price point you’re in determining the exact fair market value for property is not an easy thing to do. New agents are struggling with this. I can tell because every time we host a workshop for new agents at Keller Williams to show them how to correctly pinpoint the value of a property, they’re always packed and there’s a lot of questions on the subject. It’s also difficult for computer algorithms to pinpoint the exact value of a property. And there’s also some other reasons involved, which we’re going into in just a second.

Now there’s a few things that you can do on your own to approximate the value of your home, and that is not very difficult. That’s the first question we’re going to answer here today.

So what are some of the things that you can do in order to find out the approximate value of your home?

Let me start out by stating a few things, how you should not approach the subject. So some people seem to think that the house has to be worth what they paid for, plus appreciation, plus the upgrades and improvements that they have made. Or that their house is worth for whatever the neighbor has sold their house for. So while these things all have an impact on the fair market value of your home, this is not really a good way to go about this.

First, let’s talk about tax assessments. If you know nothing about the value of your property, then looking at the tax assessment is a fair starting point. Tax assessments have gotten a lot of attention lately because we went through an area wide reassessment of property values last year, and many of us have received a property tax bill that was significantly higher than in previous years because of that. A lot of people give the government a lot of credit, and they are looking at the official government property value assessment as the ultimate value guide, and that is not correct.

The city tax assessor is doing the best job they can to estimate the value of a property for the purpose of fair taxation. The city assessor has not seen your property from the outside, probably not in decades, and they certainly have not seen anything of the inside. They don’t know any of the improvements that you’ve made. They don’t know the condition of the inside of the property. So that has a huge impact on fair market value of a property.

Now, when we look at tax assessments on a regular basis, we see a deviation of up to 20% up or down in both directions, in comparison to fair market value. So if you don’t know anything about the value of your property, then the tax assessment is a good starting point, because at least it will give you a ballpark idea and one data point of what your property might be worth.

The next easy thing to do is to check your property’s value on a free online platform, for example, on zillow.com. There’s a lot of other platforms as well. You can go on redfin.com on Trulia, on realtor.com. They all provide a lot of publicly available information, and they also provide you with a computer algorithm calculated valuation of your property.

The keyword here is free online platforms, and in case you ever have been wondering how these guys are making money, they are selling your information to a realtor who is willing to pay for it. A good saying that I heard awhile ago, and I don’t know who said it the first time is, “In the online world, if you’re not paying for the product, you are the product.”

Zillow is probably the most popular one of these online platforms and they have something that is called a Zestimate, and that is a computer algorithm generated valuation of your property. So if you type in the address of your property, you are going to get everything that Zillow knows about you and it’s completely for free, so you can absolutely look it up. They provide values for about 110 million properties. So chances are, you will find your house in the Zillow database.

They are plus/minus 5% . So on a $300,000 property, that’s plus minus $15,000, approximately, so $30,000 spread. So for a rough guess, not so bad. On two thirds of the properties, they came within 10%, and on 81% of the properties, they came within 20% of the true value.

You can see the full weight and gravity of the impact of the Zestimate.  You have a pretty good chance that you are almost 20% off here. So it really depends if they have all the data, if they know everything about your property, if the neighborhood is uniform or not uniform, if that subject property is very average.

You can also look at states. Wisconsin has about the same error rate, 8.6%.

Between the tax assessment and your Zillow Zestimate, you already have two data points that you can use to approximate the value of your home. What can you do if you want to have more accurate information? The next best thing you can do is to hire a licensed appraiser.

There is sometimes a little bit of confusion. What is the difference between an assessment and an appraisal?

As we’ve discussed earlier, the assessment is the municipality value in your property for the purpose of taxation. An appraisal is something different. An appraiser is licensed and is usually being hired by the bank after you have made an offer on a property, because the bank wants to make sure that you are not overpaying on a property, and they are not over-lending on that property. So they’re going to hire a licensed appraiser to go out there and establish a fair market value for that property.

You can also go and hire a licensed appraiser on your own. It’s going to be about $500-$600. An appraiser will come out, will take a look at your property, measure on the inside and out, so they know the exact square footage of the property, take some pictures, and then they will go back to the office and pull up the MLS and will find comparables. Comparables are properties that have sold recently in your area that are very similar in size and feature and age to the home that you have. Then the appraiser will use those comparables and some math/analytics to calculate the fair market value of your home.

So an appraisal is a very good way to establish fair market value of your property. It’s a very neutral way. Usually, they tend to be a little bit on the conservative side, but if you want to have an objective third party opinion, and you don’t mind spending a little bit of money, then an appraisal is a good way of getting that done.

If you’re not ready or don’t have the time to wait for a professional appraisal, and you do want another data point, there is also another option out there and that is generally not very well known. It is called an RPR report. What is an RPR report? You can think of it as a Zillow for professionals. Real estate agents have to pay for access to RPR, and you can pull an RPR report that has a lot of information about every property, and it also comes with an approximation of the property’s fair market value.

There’s a lot of good information in here all the way from neighborhood information to social demographics, historic property information, how it was valued in the past, school district information, so a lot of good stuff. If you are interested in an RPR report for your property, I’m certainly happy to provide you with a free copy. Just let me know the property address and we’ll send one over to you.

So between all these data points, you have enough information to approximate the fair market value of your home. If you’re doing this to satisfy your curiosity, or if you’re just planning on refinancing your home, this is usually close enough. But what if you’re planning on selling your property? When you’re selling your property, you really need to set the list price with pinpoint accuracy. Any mistake that you’re making in that process either too high or too low, is probably going to cost you a lot of money. The only way to really pin down a good list price for a property is to complete a full professional CMA.

CMA is short for comparative market analysis, and it is prepared by a real estate agent. The process of compiling a CMA is actually fairly similar to an appraisal. It all starts out with a real estate agent coming out and taking a look at the lot or the land, at the house to see if there’s any improvements, for example, a finished basement or an additional bathroom, really anything that is unique and may impact the fair market value.

One key difference between an appraisal and the CMA is that the appraisal is really a look in the rear view mirror, because it is looking at comparables that have sold in the past-typically in the last six months. The CMA can also include properties that are currently for sale or properties that are currently already under contract, but have not closed yet. So the CMA has a little bit more of a forward looking component to it, and it can tell you what a property is likely to sell in the near future, versus an appraisal is telling you what a property should have sold for in the past.

This is significant, for example, if you’re selling a property in the spring. Because an appraisal will look at properties and how much they have sold for last fall and last winter, while a CMA is going to look what other properties are currently for sale in the spring market and who we are competing against or with.

What’s really critical here when choosing comparables is that you choose properties that are very similar in size, in age, in features and in condition, to a subject property, because otherwise we have to make a lot of manual adjustments in order to calculate our fair market value.

It takes quite a bit of work and experience to put together a full CMA. Now, this is something that gets easier and better as you do it over and over again. It just takes experience and knowing what’s going on in the market to get the list price just right.

So as you can see, there are really many different ways how to determine fair market value of a property. It all depends for what purpose you need that information and how accurate you need that information to be.

Please review my video above for examples of a CMA, Zillow, or RPR reports.

Thanks for reading!

-Marcus