Great post on housing valuation

Merv has an outstanding post this afternoon. Read the whole thing.

– TAX ASSESSMENTS HAVE NOTHING TO DO WITH THE MARKET VALUE OF A HOME
– APPRAISALS HAVE NOTHING TO DO WITH THE MARKET VALUE OF A HOME
– CMA’S HAVE NOTHING TO DO WITH THE MARKET VALUE OF A HOME
ZILLOW ZESTIMATES HAVE NOTHING TO DO WITH THE MARKET VALUE OF A HOME
– YOUR NEIGHBOR’S OPINION HAS NOTHING DO TO DO WITH THE MARKET VALUE OF A HOME
– WHAT YOUR NEIGHBOR’S SOLD FOR 6 MONTHS AGO HAS NOTHING TO DO WITH THE MARKET VALUE OF A HOME
– ALL OF THE ABOVE HAVE SOMETHING TO DO WITH THE MARKET VALUE OF A HOME (Bolding Mine)

Market value: The price the property will bring when offered for sale by a seller who desires but is not obliged to sell and bought by a buyer under no necessity of purchasing.  Clarke Associates v. Arlington County, 235 Va. 624, 369 S.E.2d 414 (1988).

In other words, market value is what a ready, willing and able buyer will pay for a property.

I would add two things to Merv’s excellent post – Assessments do not determine the market value of a home, but they do impact the market value of a home, as they influence a seller’s motivation. I wouldn’t say that the above have “nothing” to do with the valuation, but that each is a component of the actual valuation. Put together, all of the above can give direction, often an accurate direction, of what market value may be. Appraisals have little to do with market value, but they are of paramount importance to whether that ready, willing (often eager) and able buyer is able to get a loan. 

Heck, if someone wants to pay $465k for this 1365 square foot townhome, more power to them. If they so choose, that would be market value.

If you have questions about how one arrives at a house’s value, read this article.

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5 Comments

  1. Merv February 21, 2006 at 20:26

    Jim,
    Nice embellishment. Thanks. I thought about this a lot before publishing. I can’t believe that there is so much misunderstanding about this subject. The consumer comments I gave are real and current.

  2. Jim February 21, 2006 at 20:30

    Thanks, Merv. There is so much marketing and misinformation out there that portrays home valuations as strictly objective measures, it is often surprising that people are surprised at the subjectivity that goes into pricing.

    All of what you said in your post are influencers into the pricing structure, in my opinion, some more, some less.

  3. Matt February 21, 2006 at 22:48

    Let’s not confuse the terms “price” and “value”. If someone pays $465,000 for a 1,365 square foot townhome, it is absolutely the “price”, but not necessarily market value.

    By the way Jim, I’ve got your RSS feed plugged into “My Yahoo” news reader. Your blog is always good to read.

  4. Ray Hyde February 22, 2006 at 00:11

    Matt, would you please go ver to Bacon’s Rebellion and explain that to Ed Risse. He claims that people who move to the suburbs are buying a myth and that prices prove that the market most highly values homes closer in.

    I know there is something fundamentally wrong with that argument, but I can’t put my finger on it. Surely he is partially right, otherwise they would never sell.

    I argue that you don’t want the most expensive hous on the most expensive block. You want the one that meets you needs and has the most likliehood of appreciation.

    He ignores completely the idea that some people might make a trade-off between home values and commuting costs: and do so rationally.

    He also ignore the fact that it doesn’t matter what the market says about price if you haven’t got the money.

    I know there is more I have missed. Please help me out.

  5. Ray Hyde February 22, 2006 at 00:16

    Having read the article, ah yes, there is the matter of what the seller will take. For a close in home he may be able to take rent for a long time in lieu of cash now, and there is the matter of supply, which is what ed would argue: we need more close in homes.

    There is still something wrong. the man must be drinking his own kool-aid.