Is My Real Estate Agent Just Guessing My Home’s Value?

If you’re selling the home, you might get a little curious about how your real estate agent comes up with a price for the property. So curious, that you actually want to validate if the number they gave wasn’t created out of thin air!

Well, even if you’re not that curious, it’s still the responsibility of a home seller to sense if their agent knows what they’re doing.

Remember, your agent, unless they’re a total fraud, are trained and should know more than the average person. Feel free to talk to them if you have any questions, as trust is a key component of your relationship. Of course, if things don’t seem right, you also have the liberty to get another agent or even work with an investor!

Again, we’re not teaching you to be suspicious of the people your hired, nor is this a course on how you can become a real estate agent (but may definitely be a gateway!). This article is written just to inform you regarding the home valuation process from an outsider’s perspective. Just like how you’d see the grown-ups do their jobs when you come with mom or dad to work!

Tools of the Trade

Your agent or Realtor has many tools and resources at their disposal to determine the value of your home. Please understand that each of these tools may be used hand-in-hand with one another and that some formal training may be necessary to fully understand them.

FHFA House Price Index Calculator

The Federal Housing Financing Agency (FHFA) House Price Index Calculator (yes, that is a long name) is a tool that uses the patterns from historical data (decades-long) to see how your property would have changed in value. In your case, where the home isn’t brand new, you’d want to know how much the property’s value has appreciated (or depreciated, hopefully not) over time. And, good news: you can this yourself!

But, you might already be thinking, “History repeats itself, but not all the time. We’re no longer limited to the use of stone tools, right?” That’s correct! This tool isn’t all-knowing and all-seeing because inflation rates are a little too complex for it.

CMA – Comparative Market Analysis 

(Don’t worry, this will be the last acronym we’ll be throwing around)

Instead of only looking at how the homes in the Jurassic period were worth, real estate people also compare how your home would fare in the game from the recent deals done in your area. This is called a Comparative Market Analysis (CMA, for short).

Other than the price of these previously sold homes, your agent would also be comparing the size of the property, the number of rooms, type/quality of architecture, location, the features or amenities added, and so on, to help get an accurate value of your house. Because of the comprehensive nature of this process, this is what real estate agents mostly use. With the advance of technology, complex tools or software have also been developed that incorporates intricate formulas to make the job easier.

Even if you get your hands on these tools, the whole shebang may be a little out of your league if you’re not really into the real estate business, but simply looking at the other homes for sale in your area may is a valid application of it. If someone just sold, for way more money, a house similar to yours a couple of blocks away, that’s something you can ask your agent. Maybe they’re in a better location, have a better view, or your guy just forgot to factor in a couple of variables into the equation! Because the latter does happen from time to time, your due diligence as a seller is just as essential to the sale’s success.

FOT – Free Online Tools

(Just kidding, that’s not really an acronym.)

Want something more than the FFHA Calculator? There are home valuation sites online that can give you an idea if your agent knows what they’re doing. Here are some examples:

• Zillow’s Zestimate
• Redfin Estimate
• PennyMac’s Value Estimator

But before you burn your agent at the stake for being a few thousand dollars off from what Zillow said, do know that at the end of the day, they’re estimates, a guess. Again, just like how the other tools and processes mentioned here aren’t almighty, these sites don’t know it all just as much. Otherwise, nobody would be doing CMAs anymore.

Though these sites claim to update their data regularly to stay competitive, there is always still room for error. Some of the figures they use may be outdated or the sample size could be inaccurate. You’ll notice this when you compare prices from one site to another.

Most of these tools also generate their estimates from an “as-is” condition, which means they don’t take the cost of renovations in mind. Agents or Realtors would most likely recommend that you renovate the home, which may significantly add to the final price.

Hire an Appraiser

If you thought that your agent was the big boss of knowing the value of your home, think again. Appraisers are way higher on the ladder in terms of home valuation! They mostly use the same tools and resources as agents and Realtors to know the value of your property, but they do differ on one point. Appraisers won’t get a commission from the sale, unlike your agents or Realtors. Because of this simple difference, the appraiser’s word, in a perfect world, weighs significantly heavier.

You won’t need to hire one unless you’re getting bank financing or refinancing your mortgage. However, there’s no harm in hiring one to avoid second-guessing if you’ve got your numbers correctly.

Good to Know

Don’t be so quick to assume that you’re going to get what you’ve been presented with. The value may still fluctuate depending on how the market is doing. It’s not like countless people are roaming around with thousands of dollars on hand in search of a new home. The price may have to be brought down in this case. However, if countless people are trying to buy houses (or if there aren’t enough houses for sale in your area), then the price could go up.

Several other factors are at play here. Even if there may be a sizeable number of houses for sale and only a handful of people buying, the price can still soar if your house is one of a kind, because the property is too unique to be compared to the listings in the area. Factors like that can impact the overall value of the property.

Earlier, we mentioned that you might want to work with an investor instead. If you’re not familiar with real estate investors, they’re people who’d buy your home in an “as-is” condition. No need for renovations and a long wait period to find your buyer. If you’re in the Panama City area and are thinking of giving it a shot, you can give us, Shorefront Investments, a call at (850) 713-4866, send us an email, or fill a form on our front page. Of course, you can do a quick Google search to see who else you can work with.

On the topic of your property’s worth, we’ll be doing similar methods as you’ve read, and you could still hire an appraiser in preparation for our offer.

If all this reading has gotten you curious about what other things a real estate agent does, there are loads of resources available online! Try dipping your toes on various podcasts, like ours on The Real Estate JAM or visit the BiggerPockets website and start looking around the forums and education tabs.