INTRINSIC VALUE ~ The Unpredictable Element of Home Pricing
Ever walk into a home and think, this is just right? The style is inviting, the décor is pleasing, and the location is perfect. The house has a sense of order and comfortability and makes you feel good. These intangible factors create something I call intrinsic home value and are different for everyone.
"What is my home worth?" ~ This is the primary question asked by homeowners during a listing appointment, and rightfully so. It is a question of much importance and has many answers.
What Makes The Intrinsic Value Method Different
Many property valuation methods, like the CMA, or Comparative Market Analysis, use empirical data to arrive at a value. The intrinsic home value method uses intangible factors that may cater to one prospective buyer but not another. In other words, will the home appeal to more people than not. In the end, all property value assessments are opinions.
I am somewhat amazed at how different feedback can be after a home showing. Some buyers and their agents will rate the property an 8 (out of 10) and some a 2? Price variations can swing by thousands of dollars. So why the differences? Is it the difference in the buyer's taste, practical needs, or expectations? How about the professional real estate agents? Surely they would be grouped closer together in their opinions? Not so.
It is the difference in what makes each of us as individuals happy. This what's known in the business as intrinsic value. It is an intangible when valuing homes or almost anything for that matter. It has more to do with what each of us covets and considers valuable. One thing for sure is that you will never see the phrase “intrinsic” as a value adjustment on a bank appraisal. The lender is only interested in the hard facts of what is value and what is not.
Methods to Increase Intrinsic Value
While intrinsic value is not a tangible thing, there is still some level of control. You cannot control where someone's parents live, but you can control how your home looks. Clean, well-kept homes that look and smell good and bright have a high degree of likability. Upgrades to the home can be very appealing as long as they fit into the value model. Pleasing colors are always a plus, and new paint is often a winner.
In general, be practical and use common sense. If you have company over for dinner or a party, you will likely add special touches to the house to enhance the occasion. A home showing to prospective buyers is not much different. Make your home as happy as it can be, and those who visit will be happy to see it, and that will create the intrinsic value the buyers seek.
Good Home Pricing Practices
The intrinsic nature of a home is a powerful thing. It is one of the main reasons that sellers often believe their home is worth more than other comparable properties, whether it is or not. They live there and have happy memories. They may have chosen the décor or even designed the property; they are emotionally invested.
As a real estate professional, it is my job to assess the market value of a home. Overpricing the house is dangerous and can damage the home's ability to sell for fair market value.
I often include the homeowner in the initial home price evaluation process. This practice not only educates the seller on how the market will react to their home but creates an understanding of home valuation principles. In my opinion, the intrinsic value variable should not be the leading indicator of price. It should help decide on whether to start at the top, middle, or bottom of the home's value range.
Intrinsic value is one of five evaluative measures I use when pricing a home. All of them are important when helping a seller acquire a ready, willing, and able buyer for their property. It is, and will likely always be, the most unpredictable variable in pricing homes.
Knowledge is Power!
Jeffrey C. Hogue