Value versus Market Value

You’ve heard the age old saying that a product is worth what someone is willing to pay for it.  As a child I collected baseball cards and was intensely interested in the value of each one.  I’d tear through the pack accompanied by my Beckett’s guide eager to determine the value of each card.  As I grew older I remember asking my father about how Beckett’s could determine the value of so many different players from so many different eras.  He explained that the Beckett’s guide was a tool but that the value was based on scarcity and how many of each cards there were.  Supply and demand.

Real estate is similar in many ways… but also very different.  As I write this in the Spring of 2013 San Diego County’s real estate inventory has dried up.  Looking for a single family detached house in Oceanside, Vista, or San Marcos with at least 3 bedrooms, 2 baths, and built post-1990?  Right now, there are 6 for sale (per Sandicor 04/18/2013).  With such a shortage what inevitably is happening is that prices rise.  Supply shrivels up, demand stays the same (or increases), prices go up.  Basic economics.

The issue is the appraisal.  An appraisal is hired by the lender of the buyer to ensure that the collateral for the loan is worth what they’re lending.  In other words, if I’m going to loan you $200,000 of my money I want to make sure that whatever you’re buying with it is actually worth $200,000 so that if you need to sell it I know you’ll be able to pay me back.  That’s essentially what an appraisal is.

These days, the challenge is the balancing act the buyer must play to come in strong enough to get the property but realistic enough to have the property appraise.  If a property appraises lower than the agreed upon price, buyer and seller must come to an agreement as to if the seller will drop the price, the buyer will pay over the appraised value, or a combination of the two.  These days, with so many offers in on properties, the buyer doesn’t have a leg to stand on trying to negotiate the seller down to the appraised value.  Usually, if the property appraises more than $10,000 low the deal will fall apart.

Simple example, I recently listed and sold at property at 149 Christen Way in San Marcos.  When I met with the sellers we looked over comparable sales and determined that the value of the house was around $225,000.  In other words, we felt confident that the property would appraise at $225,000.  Still, with the lack of inventory we expected to receive offers above that price.  After 3 days on the market we were looking at 22 offers including 3 cash offers.  The property sold for $245,000.  That’s market value.  Obviously cash is king in this market because there is no appraisal.  The buyer is happy with the purchase at that price and the seller can be assured that there will not be any issues with regards to value.

If you don’t have a bunch of cash sitting around, you’re going to need an agent that can get your financed offer accepted.  It’s not always just an agent that promises that the deal will go through or sends a sob-story of why you deserve it more than the other 21 offers.  You need an agent that’s connected and understands what a seller is looking for.

Call, email, or text me with questions and I look forward to getting your offer accepted.