Looking at properties to buy but have no idea how to find out what they’re really worth? Check out our list of 5 easy ways!
Have you ever stopped and wondered what your house is really worth? Other than the obviously short answer that it’s worth what you paid for it, the long answer is a bit more difficult to answer.
The long answer depends on the market and who you’re asking. It could be an agent, a lender, or a county tax assessor, but even so, can you really take their word for it?
It helps if you know how to calculate your home’s value. This is now possible with the help of online tools. Also, trained professionals prepare you to buy, refinance, sell, negotiate lower property taxes, or go into details about your home’s equity.
If you’re looking for ways to find out the value of your home and understand why it matters, you’ve come to the right place. We’re providing 5 ways that’ll help you find them out. Let’s get right to it!
1. Using the Automated Valuation Model
If you search online for how much your house is worth, you’ll get dozens of results of home value estimators.
Many homeowners determine the value of their homes through an online estimator. According to many surveys, this method is widely popular.
Automated Valuation Model(AVM), is usually provided by real estate sites or lenders. They use records like deeds of ownership, property transfers, tax assessments, and some mathematical modeling to predict your home’s value.
They also take into account the listing prices and recent sales in the area to determine the prediction as well.
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How Does It Work?
The AVM’s used on most real estate sites are normally for lead generation and marketing purposes. Even with limited data, the AVM on these sites is charged with returning a value for every property. This only waters down the accuracy.
On the other hand, the AVM that’s used by real estate professionals and lenders are a bit different. Their models have a confidence score that indicates how close an estimate is to market value.
A 90% score generally means that the estimate is within the range of 10% market value. However, each AVM has its own way of calculating.
A professional-grade AVM with confidence scores that linked to accuracy is a major step up from the AVM used in the real estate sites. Even so, it’s better to talk to a local real estate expert. That way, you’ll get more insight into an online evaluation.
2. Getting a Comparative Market Analysis
The next step you can take is to ask your local real estate agent for a comparative market analysis, otherwise known as CMA.
A CMA is not as comprehensive as a professional appraisal, instead, it gives you an agent’s side of evaluation of the market or home. It provides an estimate of value which is usually for listing purposes.
Incidentally, the way you can get your hands on a CMA is through the real estate agents in your local area for hardly any cost. But, be careful though, as they may only provide this analysis in the hopes that they are being hired as your agent.
3. The FHFA House Price Index Calculator
If you’re unsure about using AVM’s to determine the worth of your home, then there is another, more scientific way to figure it out – the Federal Housing Finance Agency’s house price index calculator.
This tool uses a repeat-sales method that’s armed with millions of information about mortgage transactions dating back from the 70s.
It then tracks the home’s change in value from one sale to another. Finally, the calculator uses this information to estimate how the values alternate in a given market.
Sounds pretty straight forward, right? Well, try to keep in mind that the HPI calculator only looks at home mortgages that have been acknowledged and not seasonally adjusted or for inflation.
Anyway, if you have a conforming and conventional loan, then using the calculator is probably an easier way to figure out how much your home has been appreciated over time.
4. Hiring a Professional Appraiser
Before they approve a mortgage, lenders first need a home appraisal. Thankfully, as a property owner, you can hire an appraiser to help you find the estimate of the value of your home.
Their job is to provide you a value based on your needs. Oftentimes, clients only want a value for a date in the past. Other times, they ask for the current market value for purchase or a refinance.
There are a few other things appraisers evaluate. For the market, they evaluate the city, neighborhood, and region. For the property, they evaluate the improvements of the house, the characteristics, and the land it’s on.
For comparable properties, they look at the vacancies, cost, listings, sales, depreciation, and other factors for indistinguishable houses in the same market.
All this information is used to create a final opinion of value and deliver it to you in an official report.
5. Evaluating Comparable Properties
One thing both AVM’s and appraisals have in common is their dependence on the recent sale value of comparable properties.
Referred often as comps, over 50% of homeowners estimate the value of their home by taking a look at comparable properties as this way is the simplest to them.
This is one way to evaluate market value without paying an appraiser, but keep in mind that just because the house next door to you is sold, that doesn’t mean it’s worthy of a comp.
In order to choose the right comp, you’ll need to think about which house would interest a potential buyer when yours isn’t available. Keep an eye out for similar conditions, upgrades, size, and location.
What You Need to Get Started
To get started, start by browsing a website where MLS listings are being displayed. Find the recent sale prices of comparable homes in your neighborhood. If there aren’t enough sales, then look at listing prices instead.
You’ll also need 3 valid comps to come up with a probable range of market value for your home. Once you’ve chosen the comparable properties, you’ll need to adjust for differences between your home and the comps.
Simply add value to the price of the comp if the property has more bedrooms than your home. You can also subtract the value if the interior is dated.
This totally depends on the conditions present in your market as they can tend to vary widely. However, after you’ve adjusted the values, take a look at the highest and lowest comps. That should give you an estimate of your home value.
In conclusion, we’d like to say that it’s not an easy task to figure out the exact value of your home.
There are very many technical things attached to finding the accurate answer, but if you do your homework right you can get the right results.
We hope our list of ways help you figure it out and also give you an upper hand when you’re looking to buy a new property and show off the knowledge you’ve acquired!