Did you get a good deal?

You bought the only house in the neighborhood that doesn’t back to green space?  Did you get a good deal?

You bought the only house in the neighborhood that doesn’t look like the others?  Did you get a good deal?

You bought the smallest home, the largest home, the one with the strange floor plan, the only 3 bedroom home in a neighborhood full of 4 bedroom homes, the one with a one car garage when every other house has a two car garage, the one with the really steep driveway, the only one that doesn’t have a flat backyard.

Did you get a good deal because you paid less than what the other houses in the neighborhood are worth?

Odds are you didn’t.

One of the toughest things to explain to buyers is the difference between actually getting a good deal and the perception of getting a good deal.  Often the odd ball house will appraise for more than it is worth because appraised value is different than market value.  Market value is what YOU or any buyer will pay for it.  Appraised value is what somebody who isn’t going to buy it thinks it is worth based on a formula of assigned values.

It is easy to think you got a good deal because your sale price was lower than the rest of the neighborhood, but value is so much more than price per square foot.  You often don’t discover you did not get a good deal until many years later when you want to sell.  It is only then when you can judge if you really bought it right.

When I buy a house, or am evaluating one for a client, I first determine what is the norm for the neighborhood.  You want a house to fit in.  You don’t want anything drastically different unless it is something like having more bathrooms than the norm, more garage space than the norm, a bigger or better lot than the norm.  Those are good differences because they are better than the norm.

While I am on this subject, I’ll add that having one big positive does not make up for one big negative.  If you have the biggest, nicest lot in the neighborhood but also have the steepest driveway, most buyer’s walk away thinking “If only the house didn’t have that steep driveway, it would be perfect!”

So when you are out house hunting, look around.  Learn the neighborhood.  Find out what the typical house is like.  Then compare it to the one you are interested in buying.   Or, make it easy on yourself and call somebody who knows that stuff already.

But it appraised for….

I sold a house a few days ago.  The listing agent told me that it appraised for $25k more than the list price.

Which begs the question:  Why didn’t it sell for that?

Because there is a big difference between market value and appraised value.

Market value is what the house is worth to a buyer.  Appraised value is a way to spend $375 and still not really know the market value.  The main purpose of an appraisal is to justify the purchase price to a lender.

Lots of things affect market value, such as floor plan, decor, features, view, lot size, odors, etc.

An appraiser doesn’t care about any of that.  I mean, they aren’t buying the place so it is all about comparing data to them.  Square footage, condition and what has sold in the area recently are what drives appraised value.  Appraised value is often more about the area the house is in than it is about the subject house.  I’ll also mention that in an appreciating market, appraisals are often incorrect because the data they use is recent history.  In other words, the current appraised value is based on the past.  Market value is always in real time.

Which leads me to this house that I sold.

The area around the house has homes that are 20 years old to brand new.  Values are all over the place.  The brand new houses that are the same size as the one I sold go for $50-75k more than what my client paid.  The same size house in the nicest section of the area is a lot more too.  By comparing my client’s new house to the more expensive and brand new houses, I can see how the appraisal was more than $25k higher than the actual sale price.

How did I help my client determine what the house was worth?  I excluded the more expensive houses up the road.  I excluded the brand new homes since that is a unique sale-they are only new once.  I looked at similar sized houses. I looked at the finishes of each house.  Did they have hardwood?  What were the appliances like?  What was the backyard like?  I looked at all the pictures of every comparable recent sale.  Then I thought about it.  I made adjustments for size and condition just like an appraiser, but I also thought about it through the eyes of a buyer.  I then told her what I thought the house was worth and she made an offer.