How much is my house worth?

Real estate sales require a buyer and seller to agree on a price and terms. The negotiation between a buyer and seller is the ultimate arbitrator. Of course, you can refinance your home and then the value of your home only matters to you and your lender, or you can do an appraisal for estate planning purposes which means the value of your home is just a number on a spreadsheet, but when friends and clients ask me, what’s the value of my home? Inevitably, what they really mean is, if I list my house sale today, how much can I expect a buyer will be willing to pay for it?
The first principle, and the one basic assumption that anyone who asks what their home is worth must implicitly accept is called the “rule of substitution.” Some of you might be familiar with this rule from an economics class taken sometime in your distant past. Here it is: The rule of substitution says that any time a consumer is offered a choice between two products that have the same intrinsic features and qualities the consumer will always chose the less expensive of the two products.
This is not rocket science, and it is common sense. Two bars of soap, both are the same, one is for sale for buck, one is buck and a half. Consumers buy the one for a dollar. Two cars on Craig’s List, both are the same, the cheaper one sells first. Nothing surprising about this. If this same rule did not apply to real estate just like any other consumer product, then the entire science of price prediction would be impossible. Once you accept that people buying homes are really no different than consumers of any other product and that they shop and compare homes based on features and amenities, and then buy the home that offers the features that they need and want at the lowest price, then you can begin to wrap you mind around the true impact that the supply and demand has on the price of a home. The real reason that home prices range up or down a few percentage points from one week to the next, and trends start and stop with prices moving first one way then the other, is all based on the ever changing inventory and the ever widening and shrinking pool of buyers.
When I make predictions about the value of a home is it because I have been previewing the inventory continuously week after week and I have seen every kind and style of home in our county and I know what buyers and sellers have agreed those homes have been worth over many cycles and seasons of our market. The result is I can quickly run through the catalogue of similar homes and what they recently sold for, and know pretty well what a buyer would expect to pay for your home. How I do that will the subject header of many future blog entries.

Author: gordon

Nevada County Resident since 1988. Painting and Decorating Contractor 1985-2003 Nevada County Realtor Since 2004 Member of the Nevada County Masters Club (top producing agent) Every Year Since 2004