If you have been looking at homes for sale, you may think you know what fair market value is for the size, style and type of home you are seeking. But what if you find a perfect home in a neighboring town, and the asking price is much less. Is it a misprint? Is something wrong with the home? Probably not.
Asking prices are based upon current market values in the area. In real estate, location is a big factor in what a home is worth. The result is that market values for a specific type of home in one town may be very different in a location just a few miles away.
Here are the basics of what determines a home’s market value:
- Market values are determined by the documented amount that similar, comparable homes in that same area or community have recently sold for.
- Comparables (“comps”) should be similar in square footage, number of bedrooms, amount of land, age and amenities. In other words, apples should be compared with apples.
- If you look in other communities, the comps will have a bigger or smaller asking price, depending on the locations’ market values. For example, the price tag for a 3-bedroom home with an attached garage on a half-acre of land in Dover will probably be less than if the exact same home had been located in Portsmouth or Rye.
- Part of market value is influenced by demand. A lot of buyers purchasing in a community may raise home values, especially if there are bidding wars where buyers offer to pay more than asking price to get homes.
- Hot spots like Portsmouth, Exeter, Greenland, Rye, Stratham or Hampton, just to name a few, tend to have higher home market values. However, this is something that can change over time since market values are influenced by the prices buyers have recently paid on similar homes in that community. If buyers start to pay more (or less), values will follow.
- Whole communities can experience a sudden rise in home market values, sometimes over the course of just a few months. Up and coming towns typically find themselves in that position if new construction, development or refurbishing projects are taking place since buyers might suddenly be willing to pay more for homes in those developing areas. As more people purchase at the higher price point, it raises the fair market value of homes listed for sale in the coming months.
It is wise for buyers who are having difficulty finding the right home at the right price to expand their search into neighboring communities where a lower market value may afford them the perfect home. Ask your Realtor about what towns or neighborhoods are on that up -and-coming hot list and be willing to expand your search.