What's that house worth? A primer on Real Estate Terms

Real estate is an jargon filled industry.  Here is an attempt to declutter some of the terms.

Let's start with what is the "value" of a house?:

Appraisal:
This is what the bank uses to determine how much money they will lend on it.  This number can be flawed. 

• It is based on past data.  Appraisers can only look at homes that have sold in the last 180 days.  We all know the adage that "past performance is no guarantee of future return."  Looking at the prices of similar houses that sold recently should only be the starting point in analyzing what a home is currently worth.  Appraisals often miss turning points in markets and are often low in a rising market.

Assessment:
As a home owner you want this number to be as low as possible, as this is the value that the city uses to calculate your property taxes.  Property assessments and actual market value of a property rarely coincide; usually assessments are significantly lower than market value. In rare occasions the property assessment may be higher than market value (as is the case in cities with lots of foreclosure activity). In an increasing market, like Washington, DC, assessments are usually below the market value for a property.

Sales Price:
The price a knowledgeable and unpressured buyer and seller agree on to make a sale.  A foreclosure is not an unpressured seller.  An estate sale, in many cases, is not a knowledgeable seller.  A multiple offer situation does not produce an unpressured buyer...  All these factors can seriously impact the sale price.

What to do?

As a buyer:  As rules of thumb, you want the appraisal to at least hit the sales price, the assessment to be as LOW as possible (unless you enjoy paying more taxes!), and the offer price as low as possible but still high enough to get the house. Want to know how much you should offer for a house you love?  Hire a local expert. Buyer agents are a great deal since most cases, the agent's commission is paid by the seller.

As a seller: Want to know what your house is worth?  Or more specifically, what a buyer will pay for it in this specific market.  Hire a local expert.  To maximize the sales price of your home, it needs to be properly presented, marketed and priced.  To do it right, hire the expert.

While we are at it, let's talk about those "automatic valuation websites." Most of them use some combination of tax assessments and recent sales to arrive at this estimate.  They are rarely a good indicator of actual value.  Consider them simply as a starting point.

What's your houses worth?  Ask an expert!

DC is Awesome. Live here.