Connect

Find us on...

Dashboard

Login using...

New Search X

What's the Different Between Market Value and Intrinsic Value

Tuesday, May 1st, 2018 at 4:00pm Stephen Carns


A TUG-O-WAR


The Eternal Pull Between Intrinsic Value Vs. Market Value

On Your Marks...

I see a lot of homes. Most home owners are proud of their homes, and with good reason. They all proudly show me their homes and I enjoy seeing each and every one them. Not because I see bedrooms and bathrooms, I see enough of those. But with a homeowner, I know their home is much more than a simple structure where they sleep and keep their stuff. A home is a place where memories were made, where families gathered, where children were raised, where lives were defined. It is a place where they have invested it all: financially, physically, and emotionally though out their years of ownership. And as their real estate advisor, I get the tough but necessary job of telling them to let it all go. To take their memories and lives and move them out because someone else is about to start their own life in this place the sellers have called home for so long.

Get Set...

As soon as I mention “Fair Market Value,” I usually receive a barrage of reasons why THIS house is better. How in THIS house there’s $10,000 in granite counter tops, and a $30,000 pool with waterfall, that designer paint was professionally finished, and the whole house has upgraded carpet. Perhaps they refinanced and even have an appraisal that PROVES their house is special and worth a whole lot more than what the fair market value is suggesting their house might be worth.

And they are correct in their assessment. Their house is worth more… to them. Here is where the line judge lets go of the hanky and the good old fashioned tug of war begins in the seller’s psyche as I explain the difference between Intrinsic Value and Fair Market Value.

PULL!!!

Fair Market Value is an estimate of the market value of a home, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the marketplace. Fair market value differs from intrinsic value, which is the value an individual places on the home based on their own personal preferences and circumstances. In other words, the estimate of what someone is willing to pay for your home based on market statistics does not necessarily equal what a seller feels his home is worth.

“But what about my upgrades?” he may ask. “Are they worthless?” Absolutely not, but affixing a definitive value on those upgrades is nearly impossible. Just because you paid $10,000 for granite counters does not directly equate to an additional $10,000 in sales price. Upgrades are great as selling features and will definitely help a home sell faster and for more money, but it is nearly impossible to quantifying those returns on your investment regardless of what an appraiser tells you. The truth of the matter is, no matter what you asking price is, “VALUE” is determined by the buyer and your house will only be worth what a ready willing and able buyer will be willing to pay you for it.

Let’s, for a moment, consider the other side of this tug-o-war. Someone buys a plain old ordinary house for Fair Market Value. They spend $5,000 on paint and carpet — you’d hardly call them upgrades. They put the home back on the market, selling it for $20,000 over what they paid for it. Did their investment directly equate into Fair Market Value? Of course not. A buyer determined the value was worth more than the sum of the costs.

And We Have A Winner...

It is important to understand the following:

  • What you paid for your home does not affect its current value.
  • The amount of money you need to get out of the sale of your home does not affect its value.
  • What you think it should be worth has no effect on value.
  • What a neighbor says your property is worth does not affect its value.
  • An appraisal does not indicate what your property is will sell for tomorrow.

The value of your property is determined by what a ready, willing, and able buyer will pay you for it in the open market. We can estimate that amount, based upon the value of other recent closed sales. BUYERS DETERMINE VALUE whether more or less.

How do you know what the fair market value estimate is for your home? Just ask. 

I am here to help, and part of my service is educating my clients, so they can get the best results. I have a proprietary pricing schema for every property I sell that is exceedingly accurate, backed by quality data, and easy to understand.

If you are wondering if it is time to take the next step, if you can achieve your goals, or just want to know exactly where you stand, give me a call or email me for a market study for your home with my pin-point pricing valuation. We’ll set up a time to go over everything so you can decide if and when selling your home is right for you.

 

Leave a Comment