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Opinion of Value

Written by Posted On Monday, 25 April 2016 06:21
For anyone that has been working in real estate for more than a week we all know that market fluctuation is a reality of life.  Much like the commodities market values can change based on a number of factors.  Both tangible and intangible elements of a home or property can influence the opinion of value.
 
A good example of this is the value of gold.  If someone owns a one ounce gold coin it could be worth $1,400.00 today and with tomorrows change in commodities values could be worth $1,250.00 tomorrow.  The volume of gold in the coin didn't change from one day to the next so obviously the change in value wasn't based on its tangible elements.  The only thing that changed was the opinion of it's value.  The more people buy gold around the world and the shorter the supply becomes the higher the opinion of its value.  With less gold available in the market the more buying power gold has.  No one would argue that there is no tangible value in gold because its gold but opinion of value is clearly very important.
 
So the discussion then becomes how to weigh the intrinsic value of real estate versus the opinion of value based on current market conditions.  In many cases the people who own real estate believe the intrinsic value of their property is higher than what the market would dictate.  Just like the guy who owns the one ounce gold coin thinks is worth more than what most dealers will pay him for it.  There is a well known saying "its only worth what someone will pay you for it".  At the end of the day buyers will always establish market value for anything.
 
This is an important principle to understand because it is our job as agents to help our sellers have realistic goals when it comes to pricing and selling their houses.  I can count on one hand the amount of listing appointments that I have gone on where the seller was immediately willing to price their house based on my advice.  Earlier in my career I took many over priced listings because I had not yet learned the skill of educating my sellers on opinion of value.  Sellers often have personal connections to properties and allow that to influence their opinion of its value.  Sellers have often overseen or done work them selves to improve the house they are selling and factor that effort into their opinion of its value. 
 
If we lived in a world where sellers set the value of homes in the market we would have a lot more sellers and far fewer buyers.  However when buyers and sellers go to the closing table it is the buyer who gets a check from the bank to buy the home.  Therefore the house is only worth what the buyer is willing to pay.  Buyers are smart and savvy and everyone of them is looking for a deal,  There are not many situations where they are wiling to pay more than their own opinion of value.  
 
So if the buyers are the ones calling the shots out there what can a seller do?  Well that is where we come in.  It is our duty to level set the expectations of the sellers with what we see the market indicates for value.  When we meet with our sellers they are going to try to justify over pricing there house based on intrinsic value.  What we have to do is make the case for pricing the house based on opinion of value.  Just like the gold coin, there is definitely intrinsic value in every home but a realistic price for the home is based far more on the opinion of value.  The sellers job is to influence the opinion of every potential buyer that walks through their house.  Simple things can affect opinion like de-cluttering their house, maintaining their landscaping, possibly staging the home.  The best possible thing a seller can do to ensure a quick sale for top dollar is to price the house right immediately.
 
We have all held multiple open houses on properties that just wouldn't sell.  We have all tried to market a house that we knew was over priced.  We have all walked away from a listing appointment with signed contracts knowing that the house would never sell for the listed price.  The only way that we can stop this practice of taking over priced listings is by educating our sellers about the opinion of value.  When we are unwilling to have this uncomfortable conversation we only set ourselves and our clients up for disappointment. 
 
When the ink in drying on the mortgage agreement and deed and the buyers rush off to go to their new home, the price they paid will have much more to do with their own opinion of the house's worth and much less to do with 2x4's, bricks, and ceramic tile.
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Todd M.Crevier

I started working in the real estate industry in 2006 as a mortgage broker and then became a real estate agent in 2008.  In 2011 I returned to the US Army to finish my active duty career.  I retired from the US Army in 2014 and worked briefly in the logistics industry before my return to real estate in 2016.

I am a full time real estate agent for Keller Williams Realty of Pioneer Valley in Western Massachusetts.  I specialize in working with current and former military members helping them use their VA benefits to buy homes.

 

toddcrevier.yourkwagent.com

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