How to Find Out How Much a Home is Worth

Every home on the market has three different values: What the seller thinks it is worth, how much the buyer believes it is worth, and what a professional appraiser determines the worth is. In order for a home purchase to reach closing day, all three numbers must align.

As a buyer, it is important to understand that home value is somewhat subjective and will vary depending on a number of factors. Understanding how property value is determined and its effect on your homebuying journey will go a long way in building your confidence as you search for the perfect home.

In this article, we will define exactly what home values are and give you tools that will help you determine which houses are worth buying.

What is home value?

A home’s value, also referred to as its current market value, is simply the price a buyer is willing to pay to purchase the property. Rather than a rock-solid price, home value is a general estimate based on similar listings, market conditions, and buyer perceptions.

It is important to not confuse a home’s market value with the appraised value, which is what a licensed appraiser deems the property is worth after an extensive evaluation process.   

How is a home’s value determined?

The market value of a home can change depending on different factors, including:

• Location

• Overall property condition

• Recent upgrades

• Local market trends

• Macroeconomic trends

• Home size

Local and open market trends will have a considerable impact on asking prices. Remember, a home’s value is largely determined by buyer perceptions and willingness to pay. That is why you will notice a drop in housing prices in a buyer’s market, as there are more homes for sale than buyers willing to purchase them.

The appraisal will be conducted to ensure that your lender does not approve a loan amount that exceeds what the home is actually worth. The appraiser will adhere to a strict evaluation procedure. Many of the factors they take into consideration are similar to those used to determine market value, like:

• Comparable local listings

• Curb appeal

• Property location

• Market trends

• Square footage

• Number of bedrooms and bathrooms

• Code compliance

Note: In some cases, a home can be sold at a price above the appraisal value in a hot housing market where bidding wars are more common.

Four ways to determine a home’s value

Now that you know how home value is determined, it is important to know how to calculate it. Whether you use online tools or hire a professional, taking the time to prepare your own number value will better prepare you for the buying process and potentially give you more negotiation power to obtain lower property taxes or more.

Here are four different ways you can determine home value:

1. Utilize online valuation tools

Good news! There are a number of online calculators dedicated to helping people estimate home worth. These automated valuations are based on property and local market data, including:

• Home’s square footage

• Number of bedrooms and bathrooms

• Recent comparable sales

• Local market trends

• And more

Just remember that these calculators are only able to provide an estimated value of a property. They do not typically account for unique home features that may increase or decrease property (such as a new kitchen remodel or old roofing). You may also find that different calculators provide varying home values, as each website uses their own proprietary formulas. However, they are a great place to start as you research potential homes.

2. Try the FHFA’s house price index calculator

Another option for obtaining a quick home value estimate is provided by the Federal Housing Financing Agency. The FHFA tracks how home values fluctuate from one sale to the next, equipping their house price index (HPI) calculator with millions of mortgage transactions to base calculations on. However, it is important to note that the values this calculator provides are based on averages, rather than a specific home’s value.

3. Get a comparative market analysis from a real estate agent

There are a number of benefits to hiring an experienced real estate agent to assist you in your search for a house. For example, agents have more access to tools and information on houses, such as the multiple listing service (MLS) which provides exact details on a home’s listing price and history. Real estate agents are also able to prepare a competitive marketing analysis (CMA). While not as detailed as an appraisal, a CMA is a comprehensive assessment of a property’s value based on the sold prices of recent home transactions in the area you are interested in.

4. Visit a tax assessor website

In the United States, every county and city has a tax assessor website that you can use to look up property values by address. In order to calculate property tax, homes are assessed at different times of the year. However, be aware that this assessed value can differ from the appraisal or market value of a home. For example, say a property was evaluated in September, but it was not listed for sale until March. In that time, the market may have shifted and increased or decreased its market value. 

Why is home value important

Everyone has their own opinion on what makes a home worth buying. That is why your idea of a dream home may not be the same as other buyers. When you are in the market for a new home, taking the time to estimate the value of the home you are interested in can help you with deciding on an offer price, avoid paying too much, and give you the means to shop with confidence.