Financing in Brooklyn Center>Question Details

cymferrari, Other/Just Looking in Brooklyn Center, MN

how can we know the real value of a house?

Asked by cymferrari, Brooklyn Center, MN Sun Sep 30, 2012

a house in sale directly from the owner,before the realtors, publicity promotions,insurance,etc.

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here's a standard, cliched response......it's worth what someone will pay for it............as long as the appraisal backs that number up.............that number, however, is never fixed in stone.........had a deal that fell thru, and the house sold for $8000 more with the second buyer.........so now the "real value/worth" just went up..........or did it?

Oh, and I find it interesting that an agent below suggested you deduct whatever you think the commission might be....keep i mind that most fsbos are looking to SAVE that commisson.........NOT put it in the buyer's pocket...............if they wind up netting the same..........they're better off listing it!
1 vote Thank Flag Link Mon Oct 1, 2012
cymferrari,

By definition, market value is the established price a buyer is willing to pay a seller without duress. Everything else is someone else's opinion (appraiser, agent, etc.) of value and could vary greatly. In the end you should do independent research to determine the value of the house to you. For example, a buyer with seven kids would be willing to pay a premium for an eight bedroom house, but the couple with only one child, wouldn't see the value in that many bedrooms, and to them that house wouldn't be worth as much.

Keep in mind that if you are comparing the price of properties that were listed and sold by real estate agents, that you should deduct for the commission (take off 7% of the final sales price) to adjust for buying directly from the owner.

Cameron Piper
Coldwell Banker Burnet
licensed MN Real Estate Broker
Web Reference: http://www.CamPiper.com
1 vote Thank Flag Link Sun Sep 30, 2012
The REAL VALUE of house is determined when a WILLING and ABLE buyer puts up the money to buy it:
Until that happens; everything you hear is just OPINION; some may be well-founded opinions, but they are opinions none-the-less.

When a SELLER refuses to use a Realtor; they are saying that their OPINION is the only one that counts. That is exactly why some FSBOs will sit there for a year or more.

The Banks use APPRAISALS to protect their interests.
Buyers use Realtor's CMA to protect their interests.

You might be able to pay too little, if the Seller does not know what they are doing:
What do you think the chances are?
0 votes Thank Flag Link Wed Oct 10, 2012
Here's the most important thing you need to know when buying a house being sold directly by the owner. MOST of the time, the seller does NOT discount the price because they are not using an agent. So, the buyer is usually paying a price that is commensurate with what buyers are paying that have a professional taking care of things for them.

AND, you should also be aware that there is an elevated level of risk for buyers purchasing a property with no agent involved. There are many requirements that must be met in order for a property to transfer properly. If these requirements are not met, there will be problems at closing. And, sometimes sellers are not aware of the paperwork they must provide to the buyer prior to a title transfer. I'm dealing with this very issue right now because of lack of seller's knowledge regarding their responsibilities.

Generally, I end up taking care of MORE details than usual when the seller has no agent! Since I have a stake in a successful closing, I do this happily, but it is more work for me!!!

Good luck~
0 votes Thank Flag Link Wed Oct 10, 2012
Debbie,

My apologies "put that money in their pocket" (if interpreted as the bottom line of the seller's side of the HUD1) may have been the wrong phrase since, my usage (the dollars the seller receives for a house after expenses) could be misunderstood. However, I still maintain my point.

The buyer and seller need to determine as close as possible, what the core value of the home is. Prices do get inflated by things like seller's paying buyers closing costs, real estate commissions, personal property, etc. If a seller sells their home for $100K and includes $10K in seller paid closing costs, the house is worth $90K, not $100K as you maintain.

Much the same, if that same seller sells their house for $100K without closing costs and with an agent listing at 7%, the house is worth $93K and the services that the agents provide are worth $7K. Unless of course you are making the argument that the services that real estate agents provide ad no value to a sale, at which point we are just going to have to disagree on a philosophical basis.

In a FSBO transaction there is no agent and therefore the value of the property is not increased by services that aren't rendered. A $100K FSBO sale means that house is worth $100K (In an attempt to isolate the commission issue, I'm choosing for the sake of arguments to use a simplistic view here and not discuss things like; proper market exposure, arm's length sales, etc. when considering a FSBO sale).

In the end you need to make adjustments to attempt to arrive at the value of the property and not the value of the entire transaction. A FSBO is an "orange" sale and a closed agent assisted transaction is an "apple" sale. You need to make them as close as possible to understand the value of the underlying house. It isn't easy, nor will it ever be perfect, but if you want to try to arrive at "real value" as cymferrari is looking for, you need to make an attempt.

Cameron Piper
Coldwell Banker Burnet
licensed MN Real Estate Broker
Web Reference: http://www.CamPiper.com
0 votes Thank Flag Link Mon Oct 1, 2012
Cameron...........huh?

We weren't discussing what a seller nets!

A value is neither inflated nor deflated with or without a commission - the value is what is simply what is paid for the home....that's how "comps" are created!
Do you factor commissions. or lack thereof, into your list of comps when doing a cma?
Of course you don't.

"True value" is what a buyer pays for a home..and the number that is listed as a sold price on the MLS.....and the number that corresponds to the price on the DEED which is recorded............. and.....also on the sales contract.......it has nothing to do with the NET to the seller.........it does NOT matter what the seller "puts in his or her own pocket"...with or without a commission!!

Using your logic..............someone owing 300,000 on a 400,000 sale only has a home worth 100,000 if that's all that winds up in "their pocket".
0 votes Thank Flag Link Mon Oct 1, 2012
Debbie,

The sold price of a listed property included the commission and therefore the seller wasn't able to put that money in their pocket. The worth of a property is what a buyer is willing to pay a seller and what a seller is willing to accept. In the case of listed property,that number is inflated due to the commission. Since the seller wasn't able to put the commission in their pocket, the value is degraded to what they actually netted out of the sale.

I understand that FSBO's intend to save the commission by listing themselves, but the idea is a falicy. The vast majority of FSBO's don't properly understand how the marketplace works, what motivates buyers, or how to truely value real estate. How could they, they do it so seldom.

Mary,

I agree that not all agents list for 7%, but then again nobody really knows what the listing commission is on sold properties, not even other agents. Since some deduction needs to be made, you can pick on the high end of listing commissions, or the low end, but the danger you get into with a varied philosophy is that it will be human nature to discount heavily if you are on the buying side, and discount lightly if you are on the selling side. Neither approach helps you arrive at the true value (if there really is one) since you are skewing the numbers to see what you want to see subject to your current situation.

Cameron Piper
Coldwell Banker Burnet
licensed MN Real Estate Broker
Web Reference: http://www.CamPiper.com
0 votes Thank Flag Link Mon Oct 1, 2012
Not all agents charge 7% so I wouldn't deduct that. I sold a house in golden valley that was next to a small ;pond that fema declared a flood plain so insurance was very high. It made a difference to potential buyers home owner insurance. I would get an appraisal, then have several market analysis from local agents to, determine the value range of the home, then make your decision based on the net sheets provided to you, by the agents minus the averaged commission. Check with your insurance agent for insurance pricing too. Have a home inspection for hidden defects that can affect the value as well. After all that you may want to get an attorney involved to review your documents if this is your first home purchase. It may be easier for you to have an agent represent you after all . Mary Rooney Counselor Realty Spring Lake Park MN
0 votes Thank Flag Link Mon Oct 1, 2012
To put it another way - without putting the property on the open market, no way to know the real value.
0 votes Thank Flag Link Mon Oct 1, 2012
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