What is your home worth?
There are a couple ways you could get a quick fix on the answer to that, but they would be no more than rough approximations. Considering that a more accurate answer might be worth tens of thousands of dollars to you, it is a good idea to take a closer look at what determines home market value.
Home Market Value Matters to More than Just Sellers
Naturally, if you plan on selling your home, getting an accurate estimate of its value is of vital importance in determining its asking price. However, even non-sellers might have an important stake in an accurate home valuation.
The burst of the housing bubble left many mortgages underwater, with the value of the property below the remaining balance of the loan. Home prices have gradually crept their way back up, and continued principal payments have also helped get millions of mortgages back out from underwater. Knowing whether yours is above water gives you the financial flexibility to consider refinancing or a home equity loan. It's easy enough to check your current mortgage balance, but determining the value of your property is a little more complicated.
There are online sites that estimate property values, and your local tax assessment may have been adjusted to try to keep up with the times. However, these are very rough tools, designed to make generalized estimates across the entire market. To determine your specific home market value, you need a closer analysis.
7 Rules of Determining Home Market Value
"Comps," or comparable sales of local properties, are the starting point every real estate agent will use in estimating your home's market value. Even if you are not selling your home, you can get similar information on local transactions. Looking at those figures is a good first step, but then you have to apply some judgment to refine the estimate. Here are seven rules to help you get a more accurate fix on your home's market value:
- It's a moving target. For better or worse, real estate prices are changing all the time. In addition to looking at recent sales in your area, you should also look at which way prices have been moving lately, and how fast they have been going. That will give you a sense of how you should adjust past sales for the changing market reality.
- Micro-location matters. You've probably heard the adage that the three things that matter in real estate valuation are location, location, and location. However, this is even more true than people realize. It's not just a question of what city or suburb you live in – street by street, each community has different characteristics that influence real estate values. Try to look at comparable sales that are as close to your location as possible, and if they are from slightly different areas try to adjust accordingly.
- Check out the competition. If you are selling your home, you are competing with the other houses on the market. What does any good business or sports team do about competition? It scouts them. Go to a couple open houses to see what the competition looks like. This might not only inform the valuation of your home, but it might give you some ideas about what you have to do to make the sale.
- Size and functionality don't always go hand in hand. People often use square footage as a basis for determining what comparable properties are, but this is a very broad measure. For example, a house with an unusually large dining room but only three bedrooms might have less functionality to the average buyer than one with a normal dining room and four bedrooms. Square footage can direct your attention to properties that might be comparable, but then you have to look at the details of how many and what kind of rooms the house has.
- Condition affects both price and time to sell. When looking at comparable values, take an honest look at the physical condition of your property. Two houses could be identical in size and design, but if one is more run down than the other, it will affect not just the price, but how long it takes to sell.
- Some features subtract rather than add value. People tend to assume that every added feature on their property adds to its value. This is not always the case. A swimming pool is a classic example. They take money to put in, and some homeowners enjoy them tremendously. Others, though, look at a pool and see time, trouble, and liability. On smaller properties, a pool can also dominate the bulk of the usable lawn space. Before you assume the extra features of your home will add to its value, think about how universal their appeal is.
- An experienced eye can save you time and money. Real estate agents run the full range of experience and professionalism. Look for one who has a substantial history of frequent transactions in your area. That person can help you fine-tune your home's valuation based on subtleties like those described above.
There is a good chance your home is your most valuable asset. Therefore, having an accurate idea of what that property is worth can play a significant role in how you manage your household finances.