Definition of Property Value
How much is a property worth? That's a question every homeowner, seller, buyer, tax assessor and lender asks, and all reach a different conclusion. Property value, like beauty, is in the eye of the beholder, and depending on the purpose of the evaluation, the differing numbers reached are all correct. The base definition of property value is what someone is willing to pay for a property and the amount the seller is willing to accept. This meeting of the minds establishes the property's value in a given market at a given time.
If property taxes are going up, your property value will more than likely go down. With the exception of states like California that limit property tax hikes, high-tax states are seeing a fall in property values while low-tax states are looking at increasing property values.
Perform a Comparative Analysis
When a homeowner wants to sell, his real estate agent performs a comparative marketing analysis, otherwise known as a CMA. This is a study of the neighborhood and the homes within close proximity. It analyzes the square footage of the homes, the number of bedrooms and baths, the condition of the home, the land surrounding it and any upgrades that have been made to the property. The base property is then compared to other like properties nearby that have sold and the prices they have generated. Armed with that information, an estimated property value is applied. Given a stable market, the seller has a general idea of the price he can expect.
What Skews the Analysis?
If there is a short sale or foreclosure in the neighborhood, the property values are skewed downward. Most CMAs throw out the high and low evaluations and look for a number somewhere in the middle, but more than one local distressed sale does not bode well for the property valuation. Supply and demand also have an effect on the property's value. If there are a lot of homes on the market, the prices go lower as buyers are at an advantage, price wise. If few homes are available, a bidding war may ensue, sending prices higher. While prices affect value, the value may be false.
Giving A False Valuation
A large home sitting in the middle of an average-sized home community may not bring the price its owners wish as the property value is compared to its neighbors. The same holds true for a small home in a similar situation. That smaller home may enjoy the benefits of its surroundings and have a higher property value.
Community Factors Affect Values
Property values are affected by what's going on in the community. If a new highway is planned adjacent to the community, or a power plant, strip mall, business development or any commercial endeavor are scheduled for construction, values dip lower. If the school district is noted for its excellence, values go up. Quality of life issues affect property values and a community dedicated to the peaceful enjoyment of its residents is one that holds its value.
Economic Factors Affecting Property Value
If the house down the street sold for a price that is higher than your CMA suggests, take a look at the mortgage market. Have interest rates risen since that sale, slowing down sales? Examine how the Tax Cuts and Jobs Act that went into effect in 2018 cut into the higher-end market and tightened the mid-level market, giving people a reason to stay, or sell and rent. Is employment looking bright for the immediate future and are new companies moving in? Then property values will increase. Staying abreast of the economic indicators for your area helps explain your property's changing value.
Other Valuations, Other Purposes
A lender's appraisal carries weight when establishing a property's value. If the appraisal comes in below what a buyer is willing to pay, negotiations as to who makes up the difference can send a deal down the tubes. Lender appraisals delve deeper into the analysis of the property than a CMA, and the more recent the sale the more weight that sale price carries when arriving at a value.
A property assessor's appraisal is done to establish a tax base for the property and should not be used to establish a property's value. Most assessors' appraisals contain deductions for homesteading, tax benefits pertaining to the community, age benefits and other factors that lower the evaluation.
A versatile writer, Jann enjoys research as well as doing the actual writing. A career in television writing, as a magazine editor and celebrity interviewer, Jann adapts to her environment, having traveled the world, living overseas and packing and unpacking her treasures for a new location over 30 times.