4 Ways To Determine Home Value
There are various ways to determine how much your home value, all of which have varying degrees of accuracy. However, at the end of the day, your home is worth what someone is willing to pay for it.
A multitude of factors can affect the value of your home, from the neighborhood and lot size to its age and condition. To give you the best sense of your property value, we highlighted four ways to determine home value. Before jumping in, we’ll also quickly explore the three main types of home valuations.
What You Should Know About Home Valuations
Home values can vary widely depending on the valuation method used. For instance, your home may have an assessed value of $200,000, and may have an appraised value of $295,000, and have a fair market value of $325,000. To give you a better understanding of how this happens, let’s look at the three core approaches to measuring home value.
1. Assessed Value
Assessed value comes from a local government’s estimate of a property’s worth. Local assessors use this value to calculate property taxes. In this estimate, they will consider factors of the property such as:
- Comparable Properties
- Condition
- House Size
- Improvements
- Location
- Lot Size
Local governments typically reassess properties every few years or when a property undergoes significant changes. You can appeal the assessment with supporting evidence if you believe your home’s assessed value is incorrect.
2. Appraised Value
An appraised value comes from hiring a professional home appraiser. Appraisers consider various factors to determine a home’s value, such as size, layout, features, location, condition, upgrades, and local comparables (comps). Sellers use appraised value to help with pricing and buyers use it to satisfy mortgage lenders’ requirements.
3. Market Value
The market value of a property is the price a buyer is willing to pay, and a seller is willing to accept. This value rarely aligns perfectly with the assessed and appraised value as the condition of the housing market heavily influences it. The hotter the market, the higher the value. The colder the market, the lower the value. The housing market is dependent on a variety of factors, namely:
- Supply and Demand: With more buyers than available homes (seller's market), market values tend to rise. Conversely, in a buyer's market, values may decline.
- Comparable Properties: Recent sale prices of similar homes in the area provide a baseline for determining market value.
- Location: Homebuyers typically prioritize safe neighborhoods with good schools, convenient amenities, and vibrant cultural hubs.
- Condition and Features: A well-maintained home with modern upgrades typically has a higher market value than one needing significant repairs or updates.
- Market Trends: Broader economic factors, such as interest rates, inflation, and local job market conditions, shape market value.
Unlike assessed or appraised values, market value is highly fluid and changes based on market conditions. For example, seasonal fluctuations, new neighborhood developments, or changes in interest rates can all shift market values.
Ways to Determine Home Value
1. Multiple Listing Services
Multiple listing services (MLSs) have become go-to resources for preliminary real estate research. These online databases often have a home valuation tool for prospective sellers and curious homeowners.
These tools aggregate public information about a home and the current market conditions of an area and run it through an automated valuation model (AVM) to determine home value. They don’t consider upgrades, maintenance issues, amenities, or recent news impacting a neighborhood, so the accuracy of an MLS can be limited.
*Fun Fact: In the process of writing this article, we used the MLSs below to measure the estimated home value of the same home. The value ranged from $144,000 - $266,900. That’s a staggering 60 percent difference in home value. Therefore, it's important to go beyond an MLS valuation when determining home price.
2. House Price Index Datasets
The Federal Housing Finance Agency (FHFA) has a house price calculator that projects what a given house purchased at a point in time would be worth today if it appreciated at the average appreciation rate of all homes in the area. This estimate doesn’t consider the current market, house condition and age, home improvements made and needed, or many other factors. However, it provides a general estimate of your home’s value.
3. Real Estate Agents
If you’re aiming to get top dollar for your home, involving a real estate agent is beneficial. Seasoned agents bring expertise, market knowledge, and resources to the table to ensure you know what your home is worth.
One of the biggest perks of using an agent is that they can run a comparative market analysis (CMA) and factor in their knowledge of your home’s condition, current market conditions, and niche neighborhood insights. This report will give an in-depth analysis of your property that considers similar properties in the area. CMAs are generally more accurate than an AVM.
Side Note: For sale by owner (FSBOs) typically sell for less than the selling price of other homes; FSBO homes sold at a median of $310,000 in 2023, significantly lower than the median of agent-assisted homes at $405,000.
4. Appraiser
If you want a formal valuation, you can hire an appraiser. This method is often considered the most accurate by real estate professionals. However, this service does come with a cost. Generally, the price of an appraisal is about $350.
Finding An Agent That Understands Value
While MLS valuation tools can provide a rough estimate, a real estate agent's expertise and market understanding are essential. With the proper professional guidance, you’ll be well-equipped to maximize your home’s potential value. Reach out to Maleno Real Estate to confidently enter the real estate market and navigate the seller’s process like a pro.
