How Much is Your Home Actually Worth?

This is for all the current and aspiring homeowners out there. How exactly is the price of a home determined? Perhaps you've noticed a home which seems to be a good price but no one buys. Maybe you've seen a home that sells for thousands above asking after just a few days on market. There is quite a wide range of factors that go into play, both on a macro and micro level. A book could be written on this complex system, but to make things simple we will look at the heart of the matter, what it really comes down to.

How exactly is the value of anything decided? Value, as with price, is subjective. In order to get the right price there must be an agreement between the buyer and seller. For the same home, someone may not even want it if it were free whereas someone else is willing to pay $400,000. In the simplest terms, value is in the eye of the beholder and therefor the right price is generally determined by that one person who is willing to pay more than anyone else (of those that know about it).

The value of a home will be determined by that buyer who wants it most, but before they show up, a decent price point must be set. Too high of a price will detract buyers, too low will confuse them (but definitely attract attention). A good price point is determined by looking at the nearby factors and recent comparable sales data. Most of the time finding a perfect comparable recently sold home is not possible. When I create CMAs (comparative market analysis), I look for the closest most similar house that sold within the last three months. Going too far back in history greatly skews price because home values can change very rapidly. If a comparable home was sold close by, it doesn't necessarily mean that the home in question is worth the same. Consider the following major factors:

What school districts are associated with the home and each comparable sale?

What years were the homes built? Generally home ages will be similar or same in the same or a nearby neighborhood, but not always.

Are there missing or extra rooms or features? You can determine how much a room or pool would add or deduct by comparing those with and without and noting the sold price differences. This is not an exact science, because many factors affect each home sale.

What were the circumstances of the sale? If it was a foreclosure and the home was trashed and needed a lot of repairs, obviously the price will be much lower than what it could have been in better circumstances and conditions. It's best to only compare homes that were sold in similar circumstances if possible.

Next let's look at the different perspectives, sometimes almost polar opposites, between buyers and sellers. Buyers will immediately scrutinize potential homes and look for defects and needed repairs. They are concerned with cost. Sellers want to spend the least amount and make the most possible. This creates difficulty which the real estate agent must masterfully negotiate. With a minimally invested sale, homes can sell for thousands less. Real estate agents must ensure that the home to be sold is in attractive condition, is highly presentable and that it is marketed through the best conduits pertaining. With that being said, home owners often want to list at a high price and buyers want it for less.

You may have noticed on various websites such as Zillow an estimate of home values. I have examined many of these estimates in cities all over California and have found them to be unreliable. Sometimes the estimates are fairly close to actual value, and sometimes they are off by tens of thousands. As of 2015, developers have failed to create a highly effective computer algorithm that measures all of the factors and generates consistently excellent estimates. For now, the best way to get an estimate is with good old brain power and common sense.

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Preparing For Your Future: Your First Home Mortgage

This is for all the prospective home buyers who want to be in the position to buy in the future. In order to prepare for your future, you must understand your own perspective. This will enable you to take the proper approach and make your dream a reality.

Approximately 80% of Americans report themselves to be optimistic. The rest? Well, pessimistic. How is this relevant? You'll see... Most people are generally optimistic, which means they want to look for the good things in life, focus on positive, and overall have positive and hopeful attitudes toward their future. This can be a good thing, but it is also bad. Pessimistic people, although sometimes unpleasant, tend to make more careful and calculated moves. They are less likely to spend, more likely to save and put themselves in better financial positions for the future. I am speaking in generalities of course, but there is a real science behind someone's attitudes and how that affects their behavior. Since being optimistic can make us want to spend, a little bit of pessimism can help to balance things out. Pure determination is not enough, you must understand your attitudes and make calculated and conscious efforts toward building your future! Take a moment to reflect on your own perspective and attitudes, and how that affects your finances.

The next step is to understand what lenders will look for when you meet with them to see what you can qualify for. They will ask you for: (A) Last two years of your W-2 income statements, (B) Last two months of full bank statements, (C) Last thirty days of pay stubs. The underwriting process varies between lenders, but all will look for job stability, amount of income, history of consistent earnings, and amount of reoccurring expenses.

Knowing this, following a plan to make all of these look promising to a lender will get you that loan. First, try to get some history with your work. Of course, always be looking for opportunities to advance or change companies/ positions for the sake of considerably higher pay. If you do make a transition between companies, it is best to do it quickly. Months of unemployment in your record can be enough for the loan to get rejected. If your job is more entrepreneurial in nature, then consistent and high earnings will help you out. Consistency is generally the most important of the two.

In the two years you are building your financial position, try to keep costs to a minimum. Make a budget and follow it closely. You can go old school, and write everything in your balance sheets at the end of your check book, or you can get an application on your phone like Level or Sweep, link it to your accounts and track your spending and remaining budget. No matter what you do, start a system to budget, and follow it closely. If you start to waver, don't go for broke, just get back up and try something different if your current system is not working. Best you can, stay away from any and all loans. Car loans, personal loans, student loans, just say no. If you want a home mortgage, you can't have added liability. You may still be able to get the mortgage, but even if you are, the added loan may reduce how much the lender is willing to lend you.

During the preceding two months before you apply, run over your budget and try to cut some extra spending. Eating more meals at home and going out for entertainment less will help. Maximize your income and minimize your spending so when you deliver your bank statements, they will be looking good.

When you finally do apply for pre-approval, if you get rejected or don't get as much as you'd like, don't dismay. Keep at it! Always look for opportunities to advance, creative ways to save, and keep your eyes on the housing market. You may just find something in your budget that you love. When you do, give me a call and I will advise, submit your offer and negotiate on your behalf.

For more information on how optimism and pessimism affect us, click here.

For information about Level Money, click here.

For more information about Sweep, click here.

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