When preparing to sell, many homeowners have one main question on their minds: “What is my house worth?” And while this is an important question to answer when you’re about to put your house on the market, its significance extends far beyond that.
Indeed, it’s crucial that you know how much your home is worth in many scenarios. For instance, it will help you if you’re looking to refinance your mortgage, make home improvements, update home insurance, or make long-term financial plans.
On the one hand, the answer to the question of “How much is my house worth?” is simple: whatever buyers are willing to pay for it. However, there’s a bit more to establishing an estimated home value for those who aren’t looking to sell immediately.
When real estate agents, lenders, or tax assessors talk about how to calculate a home’s value, they’re thinking in terms of its fair market price. As you might expect, calculating property value entails considering a whole lot of variables and conditions. Technology has transformed how to calculate home value with online tools and software. The old-fashioned approach of researching, comparing, and contrasting is still very much applicable, too. Here are a few ways modern homeowners can answer the call to “find my home value.”
Automated Valuation Models
You’ve probably visited real estate websites like Zillow and Redfin when looking for a new home or just out of curiosity. These online services provide automated valuation models (AVMs) that can give a ballpark idea of what your home is worth.
AVMs make an attempt at calculating property values using mathematical models. These models use publicly accessible records to assess the market value of properties within a certain area. Tax assessments, deeds of ownership, sales history, mortgage records, census data, and market trends are some of the records and factors an AVM may use to find how much your home is worth.
However, it’s important to know that online valuation tools like AVMs never provide final answers. There are a few factors that AVMs do not take into consideration, including:
● Property and interior conditions
● Environmental factors
● Property taxes
● Unique features
● Legal or title issues
All those elements go into setting a listing price for your home. AVMs are good for providing a general overview of the value of homes in the area, including yours. They’re great research tools. But in more official circumstances, you’ll want to consult a human expert.
FHFA House Price Index Calculator
The Federal Housing Finance Agency (FHFA) provides an online home evaluation tool that measures how house prices change over time. Called the House Price Index (HPI) Calculator, it gives a snapshot of the value movements of single-family residences.
One of the ways the HPI calculator works is by tracking how property prices change by comparing them to other properties that have been sold more than once. This methodology is called “repeat sales.”
The HPI calculator prompts users to enter the state and metropolitan area of the home, along with the quarter and price of its original purchase. It then issues a graph showing how the price has changed since the purchase date. The FHFA HPI calculator is a reliable statistical tool that can help guide research and market monitoring. As with AVMs, it doesn’t offer an end-all, be-all answer, but it’s a reliable launch point for further evaluation.
Comparative Market Analysis
If you’re looking to sell your home, a local real estate agent can provide you with a Comparative Market Analysis (CMA). This tool, which is usually available for cheap or even free, assesses the sale prices of similar homes in your area.
The CMA analyzes several factors to establish an estimated home value, including:
● Property size
● Recent sales data
● Pending sales
● Market conditions
● Days on the market
● Proximity to amenities
● Neighborhood desirability
You can get a CMA by visiting a local real estate agent. Be aware, however, that many agents use CMAs as marketing tools; they may try to “upsell” you into hiring them to be your selling agent.
Real Estate Appraisals
When the prospect of selling your home gets serious, you’ll want to consider bringing in a professional real estate appraiser to determine your home’s value. Real estate appraisals are similar to CMAs, but appraisers are licensed, regulated, and required to meet certain industry standards.
Real estate appraisers are typically called in during the mortgage lending phase. They provide objective, unbiased assessments of a home’s worth to justify the amount of the loan being offered. Appraisers consider property conditions, special features, comparable sales, neighborhood data, and other details in their evaluations.
In general, appraisals are more in-depth and comprehensive than CMAs. The appraiser issues a written, legally binding report that describes their findings and final evaluation. Because the final appraisal is a formal report that is used in an official capacity, real estate appraisers are subject to stringent industry regulations to protect against fraudulent activities.
Comparable Properties
Both real estate appraisers and real estate agents use recent home transactions to gauge the value of the properties they evaluate. Properties that are used to determine the sale of another are called comparable properties — or, as the industry calls them, “comps.” Evaluating comps is something you can do on your own. You can visit a site that has MLS listings that show the sale prices of houses like yours in the immediate area. In general, it’s best to find at least three comps to arrive at a market value for your home. Although MLS listings are open to the public and fairly comprehensive, be aware that a real estate professional is more likely to provide a thorough and accurate analysis. Prices can rise and fall sharply in a fluctuating real estate market, and the data you gather now might be completely different in a few months.
Know Your Home’s Worth
Getting ready to put your home on the market involves a few steps, but the most important one is answering the all-important question of “How much is my house worth?” By using your resources and seeking the help of professionals, you can set a fair value for your home that the market will recognize.With so much of our personal data up for grabs, many homeowners may find themselves wondering: “Should I claim my home on Zillow?” Claiming your home on the popular real estate website puts homeowners in control of the data surrounding their home.