Question on Trulia about a Cary home’s value

Trulia has a question and answer section that i enjoy participating in – tonight i answered this question:

My aunts home was appraised at $130,000 in Cary, NC. Is $90,000 cash a decent offer? I say it is too low. My cousin disagrees.

Home is in need of updating but appraisal was $130,000. My cousin thinks an appraisal is based on what it “could be if improvements done” I say it is based on the condition as is. Comparisons were $150,000 in the neighborhood

Here is the answer I posted for Diane-

You’ve asked a great question that opens up many variables to discuss.  I’ll try to bullet point the key points for you.

–   remember an appraisal is only an opinion of value

–   appraisals typically reflect the individuals appraisers opinion of value of the property in it’s current condition unless otherwise noted

–  the local Cary real estate market is constantly changing – one variable is how long ago was the appraisal completed

– many will argue that true value of a home is what a seller is willing to accept / what a buyer is willing to pay fair ‘market value’

– i would be very careful with what ‘comparisons’ in the same neighborhood were at as their are many variables that need to be adjusted for – lot value/size – updating – extra features etc

– if i was meeting with a seller consulting them regarding market value i would review not only past comparable sales but current active competition and how many months of housing supply in that price range/area – and adjust between the condition of the homes that have sold / currently for sale compared to your aunts home

– a cash offer does not ‘net’ a seller any more money that a buyer paying the same price taking out a loan – it only eliminates the possibility of buyer not obtaining a loan

– just like a seller would want a letter from a lender regarding a buyers ability to obtain a loan any seller should ask for written verification of funds from the potential cash buyers bank before accepting the offer

– the final point is one of the most important ones – if a home needs updating a buyer will want a greater differential in the purchase price versus what it would be worth after updating – here’s what i mean – example house ‘a’ and ‘b’ are identical except house ‘b’ has recently had $20,000 in updates – house ‘a’ needs the same updates.

House A is listed for sale at $100,000 while house ‘b’ is listed at $120,000 – what would be the motivation of a buyer to purchase house ‘a’, then spend $20,000 of their own money that typically would not be in the loan only to end up with a home worth $120,000? – instead they would just purchase the home with the work already finished at $120,000 avoiding all the headache, time effort etc – the motivation for a buyer to purchase house ‘a’ would be if they could get it at say $80,000 – put $20,000 into it and have the benefit of their sweat equity – basically getting ‘paid’  for their time, effort and ability to update the home

– other variables would be why you are selling – what happens if you dont – how are you marketing the home – how long has it been on the market – etc

Hopefully this helps a little – I’m happy to schedule a no obligation seller obligation with you and your cousin if you desire (assuming you do not currently have representation)

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