Here's part of my letter to a FSBO client....
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Enclosed is your appraisal for your residence at , Illinois. I’ve also enclosed a copy of Understanding Your Real Estate Appraisal, a booklet that explains the major sections of your appraisal. The following paragraphs may or may not apply to your situation. They discuss general pricing strategies should you desire to sell your house on your own.
Please read the definition of market value on page one of the certification page that has DEFINITION OF MARKET VALUE in bold at the top. This is the definition used to develop our opinion of value and is one of the most common definitions used by thousands of appraisers. Please note that this definition assumes that buyers and sellers are each acting prudently and knowledgeably. Sometimes however, buyers in particular don’t always act knowledgeably and there’s no reliable way to predict the actions of any one particular buyer who may want to pay more or less than market value for your house. The definition of market value used is to estimate the “most probable” price that your house would sell for. What this means in practice is that there will usually be some variance between the market value of your house and its actual selling price. There could be a much wider variation between our estimate of market value and its ultimate selling price in the case of an atypical buyer who’s motivation falls outside of the definition’s scope (prudent/knowledgeable.) Just keep this in mind when negotiating with any particular buyer who may be unusually motivated to purchase your house. They may very well be willing to pay more than its market value. And depending on your motivation, you may be inclined to sell your house at a price less than market value.
The estimate of market value derived in this report is an estimate of your home's value in today's market. Page one of the appraisal provides you with information regarding current market statistics that would influence the marketability of your house in today’s market.
Roughly speaking, you can "mark up" the list price of your house based upon the average list-to-sales price ratio of 97%. That would mean that you could conceivably add 3% to the market value developed in this report as a starting point to market your house. That would give you a suggested list price of $381,000. Please remember however that this appraisal is developed using historical sales data of houses that have sold and closed. You will need to be aware of your current "on market" competition if you want to fine-tune your list price. I’ve enclosed MLS printouts of such competition.
Another thing to keep in mind is that the market does change over time. We are approaching the busy summer market which usually means that more houses will be coming on the market at a faster rate than other times of the year. You'll want to be aware of this new competition coming on the market and adjust your list price accordingly so that you can compete with them. This is an extremely important point. Use the appraisal as a tool, but remember that real estates values fluctuate with varying conditions.
This appraisal is reported to you on the FNMA 1004 Form. This is the same type of appraisal used by the majority of lenders. Page two of the appraisal lists the major items of adjustment that appraisers use when comparing houses. You are probably aware of some features that your house has that didn’t apparently make it onto the form. Appraising real estate is a combination of an art and a science. The appraisal and lending industry have decided on the major factors that influence value. Appraisers derive their adjustments directly from the marketplace. As such, there is oftentimes insufficient data available on some of the more insignificant features of the comparable sold properties. So while your house may have a number of ceiling fans for instance, there may be insufficient data available regarding whether or not other houses that have sold have ceiling fans. The same can be said for all sorts of amenities. Additionally, when a house is part of a tract-home subdivision, it is sometimes assumed that some of the more common features are prevalent in the other houses. Finally, you have to remember that it is buyers of houses that ultimately determine market value. The reality is that most homebuyers may view dozens of houses before purchasing. The average real estate homebuyer usually gets an overall “feel” for the houses they look at and usually remember only the major features. For these reasons, the adjustment grid in your appraisal addresses only the major value influencing factors and, as such, has become an accepted industry standard. All of the subtle features of your house should certainly be used when promoting your house however.
The market statistics quoted on page one of the appraisal were derived by an analysis of current data from the Multiple Listing Service of Northern Illinois which covers your neighborhood. Being an MLS operated by brokers and salespeople of real estate, the sales statistics represent houses that were sold by professionals. No bias is implied here at all, but generally, houses marketed by owners historically take longer to sell and usually result in slightly lower sales prices as compared to those marketed by professionals. This has been proven time and time again when analyzing large samples of for-sale-by-owner house sales. Due to typical aberrations encountered in any large sample, you could possibly fare better or worse. But the probability is that you will get slightly less if marketed by yourself. This is in large part due to the multiple listing service being a very mature marketing vehicle used by these brokers that exposes their listed properties to a very targeted audience which are buyers represented by other brokers. These brokers tend to show houses only in the multiple listing service rather than those marketed for sale by owner. The majority of homebuyers are represented by a real estate broker, so there are less buyers who will seek out your house on their own. These buyers, once captured by a real estate broker, tend to only view houses in the Multiple Listing Service.
This information is provided not as an encouragement for you to list your house with a broker- not at all. But rather, for you to keep in mind that for sale by owner properties often times experience sales prices out of the norm, usually lower, depending on their success as mass marketing. This information has an influence of the ultimate sales price of your house and is provided so that you can intelligently determine a competitive list price for your house depending on how you intend on marketing it for sale. The appraisal is a tool and this information has been provided so that you can use the market value derived in the appraisal report to facilitate the sale of your house in the most efficient way. Good luck and please enjoy your move!"
Use as desired...
Pat Butler
