Real Home Value Calculator: How to Uncover a Property’s True Market Value
If you’re a current homeowner who is interested in selling, or you just want to understand the value of your asset, you’ve probably wondered … “What’s my home worth?”
And if you’re in the market to buy a home, you have probably asked yourself … “How much should I offer for this house?”
Websites like Redfin, Zillow and Trulia make it seem easy to determine a home’s value. Simply type in an address and you’ll quickly see an “estimated value” of the property. But even the websites themselves caution against relying solely on their calculations to determine value.
To truly understand the value of a property, you have to consider a number of subjective factors that can add or detract value from a home. That’s why it’s so important to work with a real estate agent who understands the nuances and buyer preferences in your particular market and can accurately assess the “real” home value of a property.
TYPES OF HOME VALUATIONS
“Property value” can mean different things in different scenarios. We’ve outlined the three main types of valuations you will need to understand as a home buyer, seller and owner.
1.Assessed Value
A home’s assessed value is determined by your municipality to calculate the amount you will owe each year in property taxes. Although property tax laws vary, assessors commonly arrive at this number by taking into account the following1:
● A property’s square footage, number of bedrooms and bathrooms, and features like a swimming pool or garage.
● What comparable/similar homes are selling for in your area.
● The value of any recent improvements or additions.
● Income obtained from renting out the property.
● How much it would cost to rebuild the property.
- Appraised or Fair Market Value
If you’re financing a home purchase (or refinancing an existing mortgage), you will often be asked to submit an independent appraisal of the home’s value. During the appraisal process, a certified appraiser will conduct an inspection and pull comparable sales data to attempt to determine the property’s fair market value.
A lender will often refuse to issue a mortgage on a property if the purchase price exceeds the appraised value. That’s one of the reasons it’s important to work with a real estate agent who understands home valuation… to avoid overpricing or overpaying for a home that won’t meet its appraisal requirements.
- Comparative Market Assessment (or Real Home Value)
A comparative market assessment, or CMA, is a report a real estate agent will produce for a client to estimate a property’s value, or what a buyer will be willing to pay under current market conditions. Any real estate agent with access to multiple listing service (MLS) data can run a CMA for a client, but only a true local market expert will be able to predict which of a home’s features will add or detract from its appeal to determine its true value in the market.
Whether you’re a buyer or seller, it’s crucial to work with a real estate agent who knows how to calculate a home’s real value. Understanding true market value enables sellers to price their home for a quick and profitable sale, and it helps buyers write a competitive offer without overpaying for a property.
CALCULATING REAL HOME VALUE
So, how do you accurately calculate a property’s real value? While some agents simply plug a property’s stats into a software program, we use a three-step process to determine—as accurately as possible—a home’s true value in the current market.
1. Identify Comparable Properties (or “Comps”)
When comparing properties for valuation, it’s important to recognize which homes are true comparable properties in your market. Look for properties that are as similar as possible in the following categories:
● Location: Factors like view and proximity to a busy street or school can have a major impact on value, so you need a thorough understanding of the neighborhood and which subsections and streets are considered most desirable.
● Lot: Look for similar size and topography.
● Square Footage: A good rule of thumb is to only include homes within a 10% range (smaller or larger) of your property’s square footage. So if your property is 2000 square feet, comparable homes would be between 1800 and 2200 square feet.
● Number of Rooms: Include homes with the same number of bedrooms, bathrooms, living areas, etc.
● Age: Look for homes built within a few years of your property.
2. Calculate Comparable Property Averages
Once you’ve gathered a good list of “comps,” you’ll want to identify any “outliers,” which are homes priced significantly above or below the average. Outliers typically have a unique feature that either significantly added or detracted value from the property.
You can use the remaining list of comps to determine an average selling price and average price per square foot. This will give you a rough estimate of your property’s value.
Most agents stop at this step. However, we go a step further to give our clients an even more accurate estimate of a property’s value … so they’re not leaving any money on the table as a seller, or paying any more than they need to as a buyer!
3. Complete a Home Assessment Checklist for All Properties
Everyone knows that not all four bedroom, 3000 square foot homes are created equal. So how can you accurately determine a home’s value based on the basic criteria found in an MLS listing?
We use a Home Assessment Checklist to evaluate each of the comparable properties we identified and determine whether the property matches, exceeds, or falls behind the market average. Then we can figure out if buyers were willing to pay more or less based on these factors… and if so, how much.
We then use this same checklist to assess your property and further refine our estimate of your real home value based on our findings.
Do buyers in your market prefer ranch-style homes or modern architecture? Will they pay a premium for an updated kitchen, or do they prefer to remodel it themselves? Should you stage the third bedroom as a study or a nursery?
Only a TRUE local market expert, with intimate knowledge of properties and buyer preferences in your submarket, can accurately answer these questions and determine how it impacts the home’s value.
FINDING A LOCAL MARKET EXPERT
Unfortunately, many real estate agents rely solely on MLS data and calculations to determine a property’s value. This may offer a good starting point for determining a home’s worth, but it’s no substitute for the expertise of a local market expert with intimate knowledge of comparable homes in the neighborhood and the preferences of buyers in your particular market.
Some agents will overprice a listing to win over an eager seller. They’ll promise a high-selling price, even if past sales data doesn’t justify it. But when the house sits on the market because it’s priced incorrectly, they’ll eventually have to drop the price anyway. Those homes that sit on the market and have multiple price reductions almost always end up selling below market value.
Buyers working with agents who don’t know their local market risk missing out on the best deals by submitting offers that are too low, or overpaying based on emotion rather than evidence of true market value.
If you’re in the market to sell, I can provide you with a free comparative market analysis to determine your real home value. Or, if you are considering a home purchase, I can guide you towards homes that represent the best value within your budget. Please give me a call to schedule a free consultation.
Sources:
1. SFGate -
https://homeguides.sfgate.com/assessed-value-house-determined-6877.html