There are several reasons why you might want to know what a property is worth. If you’re considering buying a home, then you’ll want to know its value so that you’re confident that the price that you’re paying is fair. If you’re ready to sell, knowing a home’s worth allows you to price it competitively. Are you hoping to borrow against your home? Having a good idea of its value gives you a chance to evaluate the feasibility of this option. Even if you aren’t planning to buy, sell, or borrow in the near future, it’s smart to keep an eye on what your home is worth. After all, that information can be invaluable when you’re dealing with financial planning, retirement planning, or estate planning. Do you know how to value a property?
How to Value a Property
The real estate market is complicated. Factors like location, condition, size, layout, age, amenities, supply, and demand all mix and mingle in a complex dance that make predicting a property’s market value decidedly tricky. Fortunately, there are several methods that you can use to determine a property’s value.
Check the Federal Housing Finance Agency’s House Price Calculator
If you’re a homeowner who is interested in obtaining a basic idea of what your existing house might be worth, the House Price Calculator provided by the Federal Housing Finance Agency (FHFA) can offer a quick answer. This tool doesn’t provide a custom valuation of a specific home. Instead, it utilizes the FHFA Purchase-Only House Price Index to calculate the average appreciation rate of homes in your area and the likely impact on your home’s value.
Use Popular Online Tools
The FHFA’s website isn’t the only place to find an online tool that can help you value a property. As Good Financial Cents points out, Zillow, Trulia, Realtor.com, and a variety of other organizations offer their own tools. While these sites can offer an estimated value for a property, they each have their own quirks. Each option offers its own insights, advantages, and drawbacks, so it’s worth scoping out a few different tools before settling on your favorites.
Consider Comparable Properties
If you’re willing to do a little work, you can also do your own property valuation by looking at comparable properties, or “comps.” In fact, NerdWallet reports that 56 percent of homeowners used comps to estimate their home’s value. It’s a fairly simple process:
- Visit a reliable website that lists recent real estate sales in your area.
- Identify at least three properties that are similar to yours in terms of size, location, condition, and amenities. If you can’t find enough recent sales, look at current listings, but remember that these numbers may be optimistically high.
- Consider how your property compares to the comps. Then, adjust your estimate up or down accordingly. This should give you an estimate of your home’s market value.
Ask a Real Estate Agent
When it comes to determining how much a property is worth, it’s hard to find someone better suited for the job than a real estate agent. If you want an accurate evaluation of a home’s value, enlisting a real estate agent to prepare a comparative market analysis (CMA) is an effective strategy. As Realtor.com explains, a CMA considers the facts of your home, including its location, age, condition, approximate square footage, the size of its major rooms, the number of bedrooms and bathrooms, the presence of any desirable amenities, and the property taxes. Then, it compares it to similar properties that are currently on the market or that have sold recently. While some of the information may be commensurate to what you can find when comparing properties yourself, real estate agents do have access to professional resources that the general public does not. They also have a level of experience and engagement with the housing market that the average person lacks.
Hire a Professional Appraiser
Real estate agents aren’t the only pros who regularly deal with property values. Professional appraisers are routinely called on by homeowners and lenders to evaluate a property’s worth. Appraisers often use a comparison approach similar to the one relied upon by real estate agents (source). In other cases, they may take a cost approach. To do this, the appraiser determines how much it would cost to build the home before subtracting for depreciation or condition issues. Then, they add that number to the estimated value of the lot the home sits on. In some situations, they may use a combination of the two approaches.
Whether you’re searching for your first home or a veteran homeowner, PrimeLending of Springfield, Missouri, is ready to help you make smart financial decisions. We like to keep things simple, and we do our best to make the mortgage process a positive, stress-free experience. If you’d like to know more about how to value a property or how a home’s value impacts your borrowing options, contact us today.