How Do You Determine Market Value?

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As a Realtor people often ask me how market value is determined. Sellers want to know their market value so they can decide on a fair asking price. Buyers want to know the market value of their home so they can see that the price of the home is justified. Here is the advice that I usually I give them.

Factors that Influence Market Value

Back in school, they taught us that market value is "what a willing buyer will pay and a willing seller will accept". That's definitely true. Here are some factors that influence market value.

1. Inventory - In a competitive market like we're in now, there aren't as many homes for sale. Supply is low and demand is high, creating bidding wars. A willing buyer will pay more for a property now than they would have a few years ago. Many people are desperate to secure the sale and they are willing to pay a higher price to beat out the competition. Market value is redefined each time buyers write an offer.  

2. Home Sales - Recent home sales in the area also influence market value. You may have heard the term "comparable properties". The definition of comparable properties is homes nearby which are similar in size, age and condition to the subject property. These comparable homes will definitely be used to establish a home's market value. Buyers will look to see what homes have been selling for lately and will often base their offers on such. And appraisers will use these comparable sales to justify the current contract price.

Factors that Do NOT Influence Market Value

1. What a seller originally paid for the property does not determine it's current market value. It doesn't matter if they got a screaming deal on it just two years ago. It doesn't matter if they paid a crazy low price when they bought the home. They could have paid five dollars for the property. You are not going to benefit from the great deal they once got.

2. What your relatives in another state think the price "should be" doesn't determine market value. If your parents live in Texas, chances are they paid less for their 4,000 square foot, all brick rancher on 2 acres of land than you're going to pay for that 1,700 square foot 2-story home in Colorado Springs. Conversely, your sister in California paid more for her $925,000 townhome in Santa Barbara than you will pay for a spacious single family home in Colorado. An accurate estimate of market value needs to compare apples to apples, and we all know that home prices can really vary across different regions.

3. The public assessor's site property valuation is not actual market value. I don't know why, but the assessor's estimate is always under market value. And really, that's a good thing. Our property taxes are calculated on this, and if the county assessor thinks a home is worth less, then our property taxes are lower. Hooray!

4. Public internet sites are not always accurate with their valuations. For example, Zillow posts home values on their site and call these valuations "Zestimates". I constantly tell buyers and sellers not to believe the Zillow Zestimate they have seen. They are always low. To prove my point, NBC News recently reported a class action lawsuit was filed against Zillow for undervaluing properties. It turns out they are obtaining these valuations from the county assessors site. Interesting!

Realtors, the Best Resource for Market Value

Anyone can give you an idea of what they think your home will sell for, but they won't always be right, and it won't always be supported by data and facts. The only way to get an accurate determination of the market value of your home is to call a professional. Realtors live and breathe the housing market, and giving homeowners a market value on their home is a regular part of our job. When I meet with a homeowner to do a market value analysis, I will not only give you a value based on data and my many years of experience, but I will tell you how I arrived at the market value and all of the factors that were considered.

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The Importance of a Buyer's Walk Through!

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As a Realtor, I have learned many lessons through the ins and outs of closing so many home sales over the years. This story is a recent one, which will stay with me for a long time and I thought that it was important to share in hopes that potential home buyers or home sellers might avoid this pitfall by taking some good real estate advice. 

In the Colorado residential purchase contract for real estate, it states in paragraph 19.4 that the buyer has the right to a final walk-through of the property to verify condition before closing. This story demonstrates why a walk through after a home purchase is so important and why after this incident I NEVER allow my buyer to close without one!

Meet my home buyer, David

It was summer of 2006, a warm sunny day in Colorado Springs and I had a closing to attend that afternoon. My buyer, David, lived in California and would not be present for his closing.  So I offered to drive to his new house and do a quick walk through on his behalf. I pulled up to the large 2-story home, which had been vacant for five days. I opened the front door and walked through the grand entryway into the large living room. All seemed fine so far. I past through the dining room which had wall to wall hardwood floors, and I stepped into the kitchen.

Funny, I noticed a large puddle of water sat on the kitchen floor right around the refrigerator. I thought it seemed strange that the sellers didn't clean that up! I grabbed some nearby paper towels and bent down to blot up the standing water. The towels quickly absorbed the water, taking in much more than I had estimated. In fact, the floors were soaked. The entire kitchen floor, all hardwood was completely drenched. I could feel the ripples of the warped wood beneath my hands as I crawled around trying to assess the damage. The water had traveled through the kitchen and into the dining room whose wood floors were also rippled. Carpets in the nearby living room and family rooms were all soaked. Water was everywhere. 

Could it get any worse?!

But the problem didn't stop there. Underneath me was a finished basement, complete with rec room, bedroom, and a finished bathroom. That included carpet and drywall and paint and light fixtures and baseboards and doors, etc. I walked my way downstairs, not knowing what to expect . By now I could hear running water. As my foot finally touched the bottom step, my feet were submerged in a good two inches of standing water. It was everywhere. It was pouring from the ceiling, from that main level upstairs. Large sections of wet sheetrock dangled from the floor joists above. Water was even running through the light fixtures. 

I waded through the damaged remains of this finished basement until I could find the mechanical room. I opened that door only to find more standing water, puddling around the furnace and the water heater. I went to every shut off valve I could find and turned off every bit of water in the home. Gradually that stopped some of the leaking. I then proceeded to call my buyer and let him know that he would not be closing today. I called the seller's agent and informed her of the bad news. Closing would be postponed.

The Damage Assessment

The Selling Agent and the sellers were very good about getting the appropriate contractors and trades to the house right away. They assessed the damage and determined it would cost $26,000 to repair and restore the home. The source of our problem? A small water line to the refrigerator which had burst after the sellers had vacated. It had been pouring water into the house for days.

The Lesson Learned

Had I not spent that extra bit of time and done a walk through, David would have owned that damage and all the costs involved in fixing it. As a new homeowner, this type of responsibility is both financially and emotionally devastating. So I pass this lesson on to you. ALWAYS do a final walk through. ALWAYS!!! Read more about final walkthroughs and let me know if you have any follow-up questions.

 

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Home Buyer's Needs Assessment

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It seems in this "transitional community" we live in, with military, job growth, etc. we frequently do needs assessment over the phone or on-line... only planning showings once the buyers arrive and we hit the ground running. 

What is a needs assessment for a home buyer? and where do we start?

Recently I had a buyer who lives here in town already and wanted to have coffee and chat before actually starting their home search. So we planned a Saturday morning meeting and here is what we talked about.

How are you going to finance your home?

We started with financing because while it is so fun to be looking at houses starting on-line, it can be disappointing and time wasted if you're not in the right target price range. There are a variety of mortgage calculators available on-line, but your best bet is to ask us for one of our awesome local lenders to start the mortgage discussion! I put buyers in the capable hands of a couple different awesome local lenders, if you are in need of one, .

There are two components to the loan approval... what you can spend... and what you want to spend. (okay, there's much more than that, but this is an important part of the decision.)

I tell clients ALL the time that my husband and I never take advantage of the full mortgage amount we are approved for. We prefer to save a little for home improvement, emergencies, travel, camping, and generally enjoying life not being strapped to our house and mortgage. 

So, I have the buyer thinking about the financing... and then we start talking about their wants and needs. 

What do you need in a home? 

The basics start with:

  • number of bedrooms/baths
  • number of garage spaces/carport/etc
  • total square footage
  • main level bedroom for elderly/disabled
  • area, location, neighborhood, schools

These items are generally decided based on the size of family, whether their growing or downsizing, etc. Based on price, buyers may include other wants into their needs.

The location is often determined by job expectations and then driven by price and availability of homes nearby. I will say that Colorado Springs and the surrounding area is generally extremely easy to commute. The most challenging commute is the bottleneck at Monument, as the market has driven people out of the Denver market and into the Pikes Peak Region; however many of those still commute north to the Denver metro area daily! 

Now, there are other criteria for most people, but they tend to be more in the "wants" category. I'm perfectly capable of running up and downstairs 100 times a day for my kids, my upstairs home office, etc... but we still strongly prefer a main level master. 

What do you want in a home?

  • basement... finished basement
  • deck/patio/sunroom
  • house age
  • wood burning or gas fireplace
  • gas range (actually difficult to find here in our average price range)
  • mountain views (see my previous blog for more on that one)
  • vaulted ceilings
  • large / fenced back yard
  • backing to open space/golf course 
  • treed property
  • privacy from neighbors
  • acreage 
  • Upgrades (granite, hardwoods, custom, etc.. and consider location ahead of these items that can be added/changed)
  • natural water... I chuckle a little when people want to have a creek running through or back to a lake. There is just very little water in our area. There are several small lakes in the "Tri-lakes" area (Monument, Palmer, Woodmoor and now Forest Lakes). There is water/creek running through the Ute Pass area and on the northwest side of town south of the Air Force Academy... plus creeks in Cottonwood area and Fountain. 

Location, location, location... it will always be the case, the one thing you cannot change, location! It's extremely expensive and not always cost effective to add onto a home, so size is probably the next most important factor. 

What about buying a home that has good resale?

Resale is also a very important factor when buying. If you know you'll be transitioning out of the community in 3-5 years for military, job, family, etc, you might have to stave off your desire to have the most expensive and unique home in your neighborhood. Often in these cases, the basic home in the popular neighborhood that is well kept will help tremendously with resale.

What do you give up?

Compromise - When you cannot line up the age, size, style, area, the budget for your home, it's time to start talking about which criteria you're willing to compromise... "I'll accept an older home in this area", or "I'll go farther from work for the house I want". In this high-demand market, buyers are making more sacrifices and learning what it means to compromise. 

Finding the right home to buy

We take all of these factors into account with the buyer and set them up with a search. "Garbage-in-garbage-out" can be a bit of a challenge... for example, if a buyer wants wood floors & you select "wood" as a requirement in the MLS flooring field, but a listing agent forgot to check that box, a house that might work for the buyer won't actually show up on their search. It's best to keep the MLS search basic and use pictures, descriptions, & virtual tours to decide if it's worth a personal showing. 

Writing this makes me realize how much I love this process. After 16+ years, I'm still not tired of looking for and finding "the one" for buyers! It's fun to be presented with a unique challenge and find the solution... no doubt every buyer that I work with has a unique set of wants/needs, it's so cool! If you are ready for a Home Buyer Needs Assessment, .

More Information:

Home Buyer Needs Assessment

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How Does a Realtor Get Paid, Anyway?

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Ever wonder HOW and HOW MUCH a Realtor gets paid?

Before I bought my first house, I was aware of HOW Realtors got paid. I had the chance to work in the industry earlier in my working career. However, it wasn’t until I started researching how to become a Realtor, and considered becoming a Realtor myself, that I learned more about HOW MUCH a real estate agent gets paid.


I was curious to find out if some of my friends {that had purchased a home} knew how a real estate agent got paid. Or if they knew how much a Realtor makes. So recently I asked some folks if they knew answers to these questions. A small handful knew exactly how and how much. But, most everyone said something like…

"I have no idea!"

"Now that I think about it, I still wonder how much our Realtor got paid."

"That’s a GREAT question. How does a real estate agent get paid?"


So, that boomeranged! The question came right back at me. Huh… Okay… Well, I’d love to answer that question.


Maybe you’ve wondered about this yourself. Maybe you feel uncomfortable asking. Maybe it never crossed your mind to ask. Either way, it’s okay and understandable. Generally speaking, we don’t ask our co-workers or friends what they make at their jobs. So it makes sense that we don’t think about these things. Or if we do, we're uncomfortable.


Asking a real estate agent how they get paid let alone how much money, exactly. Well.... that's awkward!


So, it’s a great question, and absolutely okay to ask!! AND it’s all part of, for most people, the largest transaction you will tackle in your lifetime. And no matter if you’re buying or selling, you are contributing to HOW and HOW MUCH the Realtor makes. I’ll cover this from a VERY high level, bird’s eye view.


Okay, so let’s start with HOW and that will lead us to HOW MUCH…


No Settlement, No Paycheck = 100% Commission


The vast majority of Realtors are only paid if your deal closes. In other words, they get paid via commission from the sale of the house. It’s not about finding a house or putting a sign in your yard, and then agreeing on a final price.


They have to sell a house either for a seller or to a buyer.


They have to get the entire transaction processed and to the “closing table” to complete the sale. And there are many hurdles and hoops to jump over and go through before you get to that closing table, my friend.


A house could not pass inspection... loans fall through... appraisals fall short of the agreed price... or any of the other hiccups that can occur in the process...


Soooooo...no closing table with everyone signed on the dotted line, then no pay day for that realtor. Bummer huh!?


Like the English language, there are exceptions to this general rule of thumb though. For example, depending on the negotiated contract, there still might be a commission due to the Realtor. And there are brokerage companies that pay their realtors on salary, with an extra commision, bonus structure. Like I said...this is a “typically speaking” overview that will not include all the exceptions. Otherwise, we’d be here all day.


Okay, moving on…


Who Pays the Real Estate Commission: Sellers And Buyers And Brokers, Oh My!


Typically speaking (you’re gonna get tired of me saying that!), the seller pays the commission for the Realtor fees. Which are always negotiated between the seller and their listing agent. And then if there is another agent involved in that transaction, then they share the commission with that Realtor. There are exceptions to this typical process. You may think that’s a bummer for sellers. Yet, when you think about it, usually the sales prices takes Realtor commission or the real estate fees into consideration. So the buyer is contributing through their agreement to that sales price.


As I mentioned above, I’m giving a broad overview. For more info on the HOW a Realtor gets paid, check out this article on Realtor.com.


Now this brings us to HOW MUCH…


Slice of the Pie: Negotiable Commission Rate of the Sale


If the sale of the house is the whole pie, then a Realtor gets a thin slice. Across the country and here in Colorado, the average commission rate agreed upon by sellers and listing agents is a variable percentage of the sales price of the house. This varies based on many factors - market area, market conditions, type of property, negotiated elements of the real estate contract, and the list goes on. Realtors cannot price fix! So, the commission percentage is always negotiable. If there is another agent involved in the transaction on the buying side, then it's shared. And even that is up for discussion.


Myth Buster: Not All Realtors Are Rich!


You have to consider that the majority of Realtors are NOT independent brokers. So what does this mean, you ask? Every state is different. In Colorado, real estate agents must work under the umbrella of a licensed broker for at least two years and are called associate brokers. Generally speaking, most remain with a broker rather than go independent or open their own brokerage. This choice affords them support with their marketing, legitimizes their business with clients, and gives them the opportunity to not carry the brokerage liabilities and responsibilities. And that means these real estate agents are splitting their commission with their employing broker.


After these splits of the commission, your average Colorado Realtor makes $51,240*, which is a bit above the national median salary for a Realtor of $44,090*. And that’s all before you take into consideration business expenses, taxes, and other overhead costs.


*Source: U.S. Department of Labor Bureau of Labor Statistics

 

The Nuts and Bolts: A Basic Example


Due to a job change, a seller is moving out of state and needs a buyer for their house. Realtor A meets with them and signs a contract to be their Listing Agent. Due to the marketing required to sell their home, they agree to a reasonable and appropriate commission rate for the sale of the house. Realtor B brings a buyer to the house. They make an offer. Realtor A and B, on behalf of their seller and buyer, agree on a sales price. They go through all the inspection, appraisal, and loan process. So, let’s take a look at how this will all break down once they get to the closing table...


1. Total Commission (a percentage of the Sales Price of the Home) = $10,000
2. Negotiated agreement of Listing and Buyer Brokerages = 50/50 Split
3. Listing Broker = $5000 commission*, pays $3,000 to Listing Agent
(Broker/Listing Agent are sharing the commission 60/40)
4. Buyer Agent’s Broker = $5000 commission, pays $2500 to the Buyer Agent
(Broker/Buyer Agent are splitting the commission 50/50)

*Remember, no commission is paid to a listing or buyer agent directly. It’s paid to the broker, then distributed to the agent(s) based on the split with the brokerage company.


And don’t forget! This is all before expenses, marketing, taxes, and other costs to run an independent business are taken into consideration.


Sooooo...


I hope this brief overview has helped answers those questions. Bottom line, a Realtor is working for you! Until you get your house purchased or sold, they don’t see a paycheck. If you’d like to understand more or have further questions, . Part of my job is to answer these and any other question you have about real estate. Looking forward to hearing from you.


And remember a Realtor can be a Real Estate Agent, but a Real Estate Agent can’t always be a Realtor. And an Associate Broker can be a…. Well, keep your eye on our real estate blog for that upcoming answer… :)

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Buying a Home with a Pikes Peak View

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People come to the Colorado Springs area from all over the country... the world for that matter. They move here primarily because of our military and technology companies, but also just for the sheer beauty and reasonable cost of living. The Pikes Peak region is a popular place. One of the first things people ask for (especially from the midwest or south) is for a Pikes Peak view! "America's mountain" sometimes feels like she's right on top of our beautiful city! Since the angle and view of Pikes Peak can vary so much, it can be a big factor in determining where you should buy a house. 

I frequently tell incoming clients that there is a trade-off between the view versus the feeling of living in the mountains. Once you get pretty far west, it's actually more difficult to see Pikes Peak because the other mountains stand in the way. So, I just wanted to give you a little perspective on our beautiful mountain from various angles. As you look through them, I'm sure you can hear "for purple mountain majesty, above the fruited plains.." playing in your head. Katherine Lee Bates wrote America the Beautiful lyrics, inspired by Pikes Peak, actually originally as a poem called "Pikes Peak"; later it was put to music with Samuel A. Ward of Grace Episcopal Church in NJ. 

This beauty was taken from eastern El Paso county in the Calhan/Peyton area as I headed back into town after showing houses. As you can see, Pikes Peak looks like a lone, towering peak from this distance, the rest of the mountain range hardly discernable. Note the cows and wide open spaces... if you're looking for this type of land and view, maybe this is the area for you!

Head just a bit further west into Colorado Springs. This shot it taken from the Briargate area. Obviously, a recent snow fall helps define the lines on the mountains, but it's also just a little more clear the closer you are. 

This one is on the way up Ute Pass. This might be the type of "peak-a-boo view" you might expect if you land in a home on the west side of town (west side is pretty much west of I-25, our major interstate... but the further west the better for most with this preference). 

Not sure I will call this saving the best for last, but I have a strong opinion on the beauty in Woodland Park... our mountain town, just 20-30 minutes "up the pass" west of Colorado Springs. The perspective on Pikes Peak is completely different. The mountain is far deeper that it seems from the Colorado Springs area. I've hiked the Crags from this back side and you can see to the west for miles. 

Needless to say , the weather, the friendliness, and so much more... but Pikes Peak is probably our most notable landmark, with Garden of the Gods, the United States Air Force Academy and the Broadmoor hotel as other major draws to the area. I'm not sure if this helps you make a decision about where you will end up buying a home, but in any case, I'm sure you'll love the area and our mountains almost as much as I do! 

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