Understanding House Evaluation and Home Value is not Really Difficult- By: marco benavides
House evaluation and home value are sometimes terms that are used interchangeably, but they are actually derived differently. Home value or price is what a particular buyer is willing to pay a particular seller at a given time. Home valuation, house evaluation or real estate appraisal is the methodology that is used to establish the market value of a house.
A property may receive an appraisal for X amount of dollars, but that is not necessarily the price that will be paid for that particular property. Real Estate appraisals are done in accordance with guidance provided by the USPAP, or the Uniform Standards of Professional Appraisal Practice.
Even though the USPAP does not define market value, it does provide general guidance for what the definition of the term should be. The USPAP states that market value is a type of value given as an opinion by the appraiser. The appraiser attempts to arrive at a value or price at which a piece of real estate should be transferred or exchanged between a buyer and a seller, if both parties are acting without coercion or external pressure and with prudence and knowledge.
Therefore, an appraiser may set a value for the home, according to USPAP guidance, but that may not necessarily be the price that the house or real estate sells for. USPAP guidance provides that valuations or appraisals may include fair market value, distressed sale value, foreclosure value, investment value, etc. Every state has adopted USPAP guidance as the standard that governs appraisals and appraisers, and it is the states that are in charge of regulating appraisal practices, so there is no centralized pricing mechanisms, despite the fact that there is general guidance.
Price, on the other hand, is really a matter of how much a particular buyer is willing to pay for a particular home or piece of real estate at a given time. Therefore, the valuation or appraisal market value may be different from the price at which the real estate is exchanged.
For instance, a home could be appraised at $200,000, but it will not receive that amount in a buyers' market. A seller must look at the last three comparable home sales to see the type of price that could be expected for the home. In a buyers' market, homes will generally sell from 3% to 5% less. A seller must leave enough room to be able to move down, according to whatever offers are received.
In a sellers' market where housing stocks are depleted, sellers can generally set prices at 10% or more of the last comparable home sale. If the last comparable home sale was $200,000, $220,000 would not be too much to ask for, as long as the seller does end up pricing the house right out of the market.
As was seen during the real estate boom pre-2007, the market was allowing sellers to ask for and get ridiculous prices for homes whose actual valuation was much less. Then we all saw what can happen when there is a market correction, where prices actually went down to a level not seen since 1993.
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