How to Determine Home Value

How to Determine Home Value

Calculating a home's fair market value isn't an exact science, and a professional home appraiser may come to a different dollar amount than a real estate agent or online valuation tool. You might collect multiple estimates, then compare them to see if they're in the same ballpark. Having said that, below are four strategies for determining a home's value.

Learn more: Assessed Value vs. Market Value: What's the Difference?

Use Online Valuation Tools

There are websites or apps that use algorithms to generate quick home value estimates, usually at no cost. Realtor.com, Zillow and Redfin are popular online valuation tools. They typically draw on public data such as:

• Recent home sales in your area
• The home's previous sale prices
• Tax records
• The size of the home
• How long it's been on the market, if applicable
• Real estate trends

These estimates aren't perfect, mainly because they don't include details that could significantly affect a home's value—like whether it needs substantial repairs. Zillow says its median error rate for homes that are not on the market is 6.9%, but online valuation tools could still give you a general idea of how much a home may be worth.

The Federal Housing Finance Agency (FHFA) also maintains a database of tens of millions of property sales dating back to the 1970s. It can identify changes in single-family home values in a specific area, then provide an estimate of how much a home there has appreciated over time. The downside is that the results don't provide details about specific properties.

Get a Professional Appraisal

This involves hiring a home appraiser to assess your property and provide a personalized estimate. They'll likely perform a visual property inspection, looking at the home's interior and exterior details. Home appraisals generally consider:

• The age and size of the home
• How many bedrooms and bathrooms it has
• The overall condition of the home, including its appliances, landscaping and amenities
• Whether any repairs need to be made
• Signs of pest infestation or water damage
• Comparable homes in the area that were recently sold

For these reasons, you can expect a property value estimate from a home appraiser to be more accurate than an online valuation tool. The average cost of a home appraisal is $358, according to HomeAdvisor.

Learn more: How to Dispute a Home Appraisal

Get a Comparative Market Analysis (CMA)

A CMA prepared by a real estate agent provides an estimate of a home's value based on recent sales data for similar homes in the area, also known as comps or comparable properties. For example, if your neighbor's home has a similar layout and was recently sold, a CMA might draw on that public data. Real estate agents often do this for free as a way to drum up business.

A CMA will typically consider home sales that occurred within a 1-mile radius over the last three to six months. These properties should:

• Be a similar size and age
• Be in roughly the same condition
• Have the same main features, such as a garage or pool

Evaluate Comparable Homes

For a very rough idea of home value, you can also research listing prices for comparable homes on the market yourself. Like a comparative market analysis, you'll want to be sure that these properties are similar in terms of size, location, age and features. After reviewing multiple listings, you might put those numbers together to come up with an average price.

But know that this approach is far from perfect—there's no guarantee that a property will ultimately sell for its asking price. Consider it a jumping-off point, not the final word on a home's actual value.

Factors That Affect Home Value

Calculating property value is a nuanced process. To get the most accurate home value estimate, you'll want to account for the following factors:

• Prices of comparable properties: This data is the basis of a comparative market analysis, which most home appraisers and real estate agents use when estimating a home's value.
• Property size: Square footage plays a big role. If you're looking at two similar homes in the same area, it's probably safe to assume that the larger one will be worth more.
• The neighborhood: If the home is in an area with good schools, low crime and easy access to grocery stores, shopping and entertainment, that will likely boost its property value. Extra points if it's close to public transportation.
• The home's age and condition: An older home may be out of date when it comes to design and aesthetics. It might also be due for costly repairs, like a roof replacement or new HVAC system.
• The state of the housing market: Property values can be affected by whether it's a buyer's or seller's market. If mortgage rates are trending upward, that could deter buyers or reduce their purchasing power. The opposite may also be true.

Why Home Value Matters

Knowing how to estimate a home's value is handy for a few different reasons.

• As a seller: Determine your asking price. The goal is to list your home for a competitive price that attracts buyers—and hopefully leads to a strong profit. You can't do that without an accurate sense of your property value.
• As a buyer: Fine-tune your offer. If you find your dream home, you can make an offer that's in line with the property's fair market value. That could give you a leg up during negotiations.
• As a homeowner: Tap into your home equity. Your property value partly determines your home equity, which is the amount of your home you actually own. That can affect your borrowing power when seeking a home equity loan or line of credit.

How to Increase Your Home's Value

Your home is probably your biggest asset. And unlike a car, which begins depreciating as soon as it's driven off the lot, a home typically increases in value over time. Below are some potential ways to boost your home's value:

• Make necessary repairs. Whether it's fixing your roof or caulking around the bathtub, maintaining your home should help bolster its value. It can also prevent you from losing leverage during a negotiation with a potential buyer.
• Maximize your space. That might involve refinishing a basement, converting an attic into an extra bedroom or building out an addition to your home.
• Spruce up the exterior. Improving your curb appeal may require painting the house, updating the landscaping, resealing the driveway or replacing the garage door.
• Go green. Adding energy-efficient features, like solar panels or smart appliances, could reduce your energy bill and increase your home value. You might even secure a tax deduction in the process.

The Bottom Line

Knowing how to calculate a home's value is a good skill to have. As a buyer, it can help put some muscle behind your offer. And as a homeowner, you'll have data to help you determine your asking price when it comes time to sell. Home value is also important to understand if you plan on borrowing against your home equity.