How To Find Out What Your Home is Worth - The Right Way

If you’re thinking about selling your house, one of the first steps is to find out what your home is worth. That information is critically important for a number of reasons. It will help you to determine what your asking price should be. It will give you an idea of what you can reasonably expect to make from the sale. If you’re buying another house, it can help in setting the budget for your new home. And combined with information about local market activity, it can assist you in deciding when to sell- or even if you should sell.

Knowing your home’s worth is important even if you haven’t decided to put it on the market. Annual property taxes, insurance premiums and home equity lines of credit are all based on the assessed value of your property. Having accurate information can benefit you whether or not you are committed to selling. Your house is an investment; knowing its worth at all times is an important part of monitoring that investment.

AVMs: Easiest Isn’t Always Best

There are dozens of automated valuation model (AVM) tools available to home owners, sellers and buyers. They’re easy to use and an increasing number of people look to them for information about a home’s value. The comparative data that AVMs use to determine what a home is worth is far from complete, however. They don’t take into account all of the factors that influence the value of a property. They do not provide the same degree of accuracy as traditional valuation methods.

AVMs can give you a broad idea of what a house is worth. It doesn’t hurt to see what they say about your home. But it is unwise to depend exclusively on those tools if you are serious about finding out your home’s value. Information that you get from AVMs should be a starting point, not a conclusion. Those tools may represent the easiest method to get information, but the easiest way isn’t always the best way.

For Accuracy, Go Traditional

To make the best decisions about listing and negotiating the sale of your property, you need to have the most accurate information available. The most effective way to get highly accurate information about your home’s worth is to use one or more (or even all) of these traditional valuation methods.

Real Estate Appraisal

A formal appraisal is typically required by mortgage lenders, but it can also be useful in finding out the value of your house before listing it for sale. Real estate appraisers evaluate several factors when determining what a property is worth, including:

  • Size and features of a house and property
  • Condition of the interior and exterior of a house and outbuildings
  • Updates, renovations and improvements to the house and property
  • Location and proximity to schools, shopping and public transportation
  • Market value in relation to your neighborhood, city and region
  • Comparable properties and market activity

This information is assessed and combined to establish the final value for the property. It is delivered in a comprehensive report. If you decide to get a formal appraisal, be sure to look for a licensed, certified or registered appraiser (the title varies from state to state).

Competitive Market Analysis

A competitive market analysis (CMA) involves having a real estate professional assess the location and characteristics of your property and comparing it to recently sold properties with comparable qualities. Competitive Market Analysis approach which takes into consideration the number of competing homes on the market. A similar report is a broker price opinion (BPO), which equally involves a real estate professional’s report on the value of a property.

A CMA or BPO is not as detailed as a professional appraisal and it relies heavily on recent market activity for comparable properties.

Comparable Market Analysis

A comparative market analysis emphasizes the closest comparable sales in the recent months. CMAs involve the assessment of market activity for comparable properties (comps) by real estate professionals.  A Realtor will carefully consider the factors that make your home comparable to others.

Here is what a Realtor will do for you for the comp analysis:

  • Create a metric of your property’s characteristics, benefits and potential shortcomings
  • Find and review sites and resources that have information about recent home sales
  • Compare listing and sale prices of properties that are comparable to yours; think realistically in “apples-to-apples” terms
  • Find at least three comparable sold properties to establish a likely range of value for your home

As no two properties are exactly the same, a Realtor will apply critical analysis in comparing similar properties with your own. They will adjust for differences, such as number of bedrooms, condition of the homes and renovations or updates. You will get an accurate value of your home with this method.

FHFA House Price Index Calculator

The Federal Housing Financing Agency (FHFA) has a house price index (HPI) calculator that uses a scientific approach to determining home value. It uses a “repeat sales method,” analyzing mortgage transactions that have been collected since the 1970s. The FHFA HPI calculator tracks a home’s change in value every time it is sold. It then takes that information to estimate fluctuating values in a given market to determine the worth of a house.

It’s a broad assessment measure and doesn’t take the local market or the condition and improvements made to a house into account. As such, it’s not useful on its own. Yet it provides a piece of information that, when combined with other assessments, helps to construct a complete picture of a property’s value.

Putting It All Together

Information is power. Having as much information as possible about your home’s worth can assist you in making the best possible decisions about selling your house.

AVMs are a great starting point for figuring out what your property is worth, but those easy online resources should only be the beginning.

For the best possible results, you should consider using all of the methods here to determine the best price tag to put on your house. It will arm you with solid data in negotiations, ensuring that you make the most out of the sale of your investment.