Real Estate Sellers
When setting a listing price for a property to be sold you have to consider a range of issues that make up fair market value.
Fair Market Value
Simply, FMV is the price that a willing buyer and seller would transact without undue pressure. Now this is a very subjective idea and quite a few elements go into the final estimate or listing price.
Pricing the property properly can be the difference between a sale and a stale property listing. Robert Link of S&L Realty in San Francisco notes that 90% of all listings priced 5% under its value will sell. If it is priced over its true value, 90% will sit on the market unsold until a price reduction is executed Now keep in mind that real estate is a series of markets and individual deals and is hard to benchmark. But there is help.
The Real Estate Agent
A good real estate agent will know the market and may even specialize in the micro market you wan to sell in. Competitive Market Analysis: This is a real estate agency generated report based on the comparison of the prices of recently sold property similar in location, style and amenities. The sales price should reflect differences in size, date condition and location. Add to that mix any market knowledge or experience the agent or realtor has and you should come up with a fair price range.
The appraiser will consider a host of components that will be expressed as a good faith estimate of a property. The appraisal process will consider:
- The value of similar properties by size and location
- The operating costs of the property to be valued
- Current interest rates and the cost of borrowing
- Any income generated by the property
- Cost of repairs and replacement of the property
Three Approaches to Value
- Comparables: Comparing recently sold similar properties to yours
- Replacement cost: The cost of building a like property using current labor and material costs
- Income Producing Property: The appraiser will factor in all operating costs such as insurance and maintenance, interest costs, risk factors such as vacancy rates and rate of return (ROR) on the investment.