Jason Smith is an Iowa Real Estate Auctioneer and member of the Iowa Auctioneers Association as well as the National Auctioneers Association.
I have many conversations with folks about the value of their property. It might be Iowa farmland or a house, after all everything has value and as an auctioneer value is important to me. Value is complex and more in-depth than I can cover in this short blog post, but I'll hit the high points from an auctioneers perspective.
In nearly every conversation with a potential seller I will always hear something along these lines. "Well I bought it 10 years ago for X amount of dollars and then I did this and that and then this to it, plus I did this, this and this and I know my neighbors down the road sold for X dollars 3 years ago so mine has to be with Z dollars now."
Certainly looking at value from that perspective would seem to be a common sense approach, but it doesn't work. If you are serious about selling real estate you've got to know, and this is the best advice I can dole out..... it just doesn't work that way. You cannot take your purchase price, add all of the things you did to it, add interest, a real estate commission and get that dollar figure today, in most cases. In some cases you can but home values have dropped and being realistic today is what will help you sell your real estate.
Value is determined through many things and in today's residential real estate market pricing is everything, I can't even begin to explain just how important pricing your home is today. Values of nearly everything fluctuates every day. If you look at the stock market you'll notice that values change on a daily basis, things go up and down based on a certain set of factors surrounding them. Certainly demand has the greatest affect on value. When demand is low and supply is high your asset drops in value. If demand is high and supply is low you'll see the value of your asset increase. Supply and demand can be used to summarize all of the factors affecting value.
All other things that affect supply and demand are sub characteristics and you see many of them affecting value today. They do not affect each area the same however. A plus for one area, may be a minus for another area. Take for instance gas prices. Gas prices are affecting today's supply and demand in the housing market where I live. Since we are on the outer fringes of the Omaha Council Bluffs metro area in western Iowa and eastern Nebraska we are starting to see folks put their homes up for sale to move closer to their employment in the city, and fewer people moving out to the country. This creates an oversupply of homes in the area and reduced demand or a minus for our area. Adding supply to a market that already had an oversupply with increased foreclosures in the last 12 months spells a real reduction in value. That very factor however is a plus for the cities of Omaha and Council Bluffs that are seeing more folks move in to avoid commutes and save on gas.
Supply has been affected by speculative building, mortgage defaults, and decreased demand while demand has been affected by a poor economy, gas prices and knee jerk reactions to the credit crisis we are seeing. It's much harder to get a mortgage today than it was 18 months ago. All of these things affect the value of your home.
If you look at that compared to the original statement above in the second paragraph you'll notice that sellers often do not think of supply and demand or current market conditions to determine value of their asset. There is no magic number to calculate the value of your house today and I'm not saying that its worth less than you paid for it, but I can tell you the best, easiest and cleanest way to determine the value of your home is with a real estate auction. Real estate auctions are the best form of appraisal you can find. Better than even hiring an appraiser to appraise your home. An appraisal is only one persons opinion of the value of your home. 3 appraisers would have 3 different opinions and NONE of them are offering you money. With a real estate auction you have someone offering you REAL CASH and not an opinion. Your auctioneer has marketed your home to every buyer interested in purchasing a home, they all came together, bid against each other and the highest bidder has just given you an appraisal for free! The most a person is willing to pay for the property is the value of your home, not what some appraiser said.
While the residential real estate market is experiencing a buyer's market today, land sales in the Midwest are in a seller's market that continues. A very different set of factors are playing into the land sales market and values of land continue to increase month to month. If you thought all real estate was the same and experiencing the same downturn today I'll explain why it's not true.
Today's grain prices are up, the stock market is down and more people are investing in the safety of farmland ownership. Farmland used to produce income is the most valuable land. This may be row cropped land for producing corn, soybeans, wheat or many other types of land. Land used for pasture of livestock comes in second in value while other lands used for timber production, recreation such as hunting usually falls 3rd in value. Determining the value of the land you are interested in selling will be determined by the amount of income it can produce, or its proximity to development. Certainly you'll see cases of land in close proximity to metro developments that will fetch a much higher price than it would if it was not in close proximity.
A reasonably steady supply of demand has not kept pace with the demand for land. Land auctions have been especially popular over the last 24-36 months with great attendance, many times with record prices set at each consecutive auction. Things continue to look bright for the future of land sales and ownership and as long as income keeps pace the value will remain steady and increase.
Could value of land fall? As I said before values fluctuate everyday up or down and if you were subject the land market to the same things the housing market is experiencing today you would see the same affect. While its highly unlikely its possible because value is affected by the supply and demand.
The distinct difference between homes and land is supply and demand. Land has a higher demand than supply today while homes are in oversupply and in low demand. In either situation an auctioneer can get you the best offer with cash on the table in 30-60 days. The alternative is to list it and let it sit on the market for months, or even years while you continue to pay the holding costs of interest, taxes and insurance. Add those up and see what you could save by calling an auctioneer today.
