How Much Is My House Worth? A Beginner's Guide

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By Erik J. Martin, Bankrate

Planning to sell your house soon? Seeking to tap into your home's equity? Looking to lower your property taxes?

If so, you're likely wondering: How much is my house worth?

There are several home value estimator tools and resources you can use to get an idea of what your home (or a property you're eyeing) is currently worth, so be prepared to find variation in your research. Home valuation experts, websites and other sources use different data and formulas to determine your property's worth, with some being more accurate than others.

How much is my house worth?

When determining what your home is worth, there are two main types of valuation to consider:
  1. Fair market value - "This is the amount a buyer would actually be willing to pay for your home based on what other properties in the area are selling for," explains Nathaniel Hovsepian, owner of The Expert Home Buyers in North Augusta, South Carolina. This number is typically determined by recent sales of comparable properties, or "comps," in your market or neighborhood.
  2. Appraised value - "This is determined by a certified appraiser and is usually authorized by your bank or mortgage company as a prerequisite to getting a mortgage loan or refinance loan," says Bill Golden, a RE/MAX real estate agent and broker in Atlanta. There are many factors that an appraiser may take into account when valuing your home, such as its location and size, its condition and any upgrades.
There are several reasons why your home's worth is valuable information to know, according to Kimberly Smith, owner of Garnet Property Group in Bristol, Connecticut.

First, if you plan to sell your home, you'll want to settle on a list price that is acceptable for your local market. Price the home too high and it won't sell; price it too low and you'll make less of a profit.

"Also, determining a home's valuation is useful if you're considering tapping into your home's equity in the form of a home equity loan, home equity line of credit or cash-out refinance so that you know how much equity you've accrued," says Smith.

Additionally, this knowledge is helpful if you currently pay private mortgage insurance (PMI), because "the PMI may automatically drop after you reach a certain equity threshold," says Smith, usually 78 percent of the original purchase price.

What's more, you may be able to lower your property taxes, which are based in part on the value of your home.

"Because these taxes rely on market conditions, it's important as a property owner to know the actual value of your home so that you're not overtaxed," says Smith. "If you are, you can file a tax appeal and possibly save hundreds or thousands of dollars a year."

It's beneficial for homeowners insurance purposes, too, because cost and coverage are typically based on your home's value.

"It's important to review your property's value with your insurance agent yearly to make sure your residence has the proper insurance coverage," says Smith.

Learning your home's value can prevent you from over-improving it, as well.

"Say you're planning on doing a large renovation," Golden says. "You'll want to know if you'd be putting too much money in the house, especially for the neighborhood you live in. What you pay may not yield a good return on investment when it's time to sell the property."

How to find out what your home is worth

1. Ask a real estate agent for a free comparative market analysis

Best for: Those who are selling or considering selling a home Real estate agents typically offer a comparative market analysis, or CMA, for free in hopes of winning your business if you do decide to sell your house. To complete the CMA, the agent pulls data about recent sales of comps in the area. They then draw on their knowledge of the neighborhood and any special characteristics of your property to estimate its value.

A buyer's agent may also provide this same service for any home you may want to make an offer on.

"A good agent will have the tools necessary to drill down and find an accurate market value," says Robert Krasow, a Realtor with Michael Saunders & Company in Sarasota, Florida. "An experienced professional follows the market, looks at home conditions and knows the neighborhood - all while making determinations using both data and their expertise."
  • Pros: It's a plus to have an expert identify comps, answer questions and give guidance.
  • Cons: Real estate agents may use different comps or have conflicting opinions of your home's value. If there haven't been many sales in the neighborhood or the comps are not that similar to your property, the estimate won't be as accurate.

2. Check your county or municipal auditor's website

Best for: Those who want to understand their home's value from a tax perspective County auditors periodically assess the value of residential properties for tax purposes, and this information is searchable online. You can look up the assessed value of your house to see if it has appreciated, or compare the figures with other homes for sale.
  • Pros: This objective data is easily accessible and provides another point of comparison.
  • Cons: This estimate is for the taxable value of your home and may not reflect some of the market factors that affect the sales price, such as time of year, competitiveness or curb appeal. In some localities, assessed values may be far off from market values, and it can take some research to find them. "Although relatively accurate, comparing sales via your county auditor can be time-consuming, depending on how the sales are listed on its website," says Smith.

3. Look at online real estate valuation websites

Best for: Sellers, buyers or anyone curious about the ballpark value of a home Dozens of home price estimators are available online, such as Zillow's Zestimate or realtor.com's home valuation tool. These online tools - sometimes called automated valuation models, or AVMs - use algorithms and publicly available data, such as recent sales, tax assessments and other public records, to generate an estimate.

However, think of these tools as a starting point, not the final word on how much a house is worth. It's best to check a few different sites and then, when you're ready, consult with a real estate agent for an expert take.
  • Pros: The algorithms that power online valuation tools have come a long way. Now used by millions, they are a simple way to get a fast price estimate just by typing in an address.
  • Cons: Take these computer-generated home price estimates with a grain of salt. They may sometimes be based on incomplete or erroneous data, or may not take into consideration a recent high-end kitchen renovation or family room addition, for example.

4. Find trends with the FHFA House Price Index calculator

Best for: Those who want to understand property price trends in their area over the time they've owned the house or another period

The Federal Housing Finance Agency's House Price Index (HPI) calculator offers yet another take on home value. The tool analyzes historical mortgage data to project what homes in your state or metropolitan area are likely to be worth based on the rate of appreciation of all homes in the area over a given period that you specify.
  • Pros: The calculator draws on data from tens of millions of home sales and offers insights about broad house price fluctuations, so homeowners can compare the relative affordability of neighborhoods over a period of time.
  • Cons: This calculator doesn't estimate the market value of a particular house. Instead, it offers a look at home price appreciation or depreciation over time. "When you use the FHFA's calculator, you're getting an automated value that doesn't necessarily take into consideration nuances that can only be determined by a human being," Krasow says.

5. Hire a professional appraiser

Best for: Those who want an additional objective price estimate and don't mind the cost Mortgage lenders hire appraisers to confirm the value of a house before approving a loan. Some home sellers choose to take the extra step of hiring an appraiser, but it's not required.

The appraiser considers the characteristics of the property, such as how many bedrooms and bathrooms it has, as well as comps - similar to a CMA prepared by a real estate agent.
  • Pros: Professional appraisers are typically licensed or certified by the state and can provide an objective opinion of the value of the home. However, many home sellers may choose to skip a professional appraisal, knowing that the mortgage lender will order its own appraisal.
  • Cons: An additional appraisal may be an unnecessary expense that can cost you anywhere from $200 to $500. Also, "be aware that no two appraisals are exactly alike," Hovsepian says. "If you got an appraisal from two different companies, that could lead to mixed results, as there is no magic formula that appraisers use. They rely on their experience and instincts, combined with market data, to appraise homes."

Bottom line

Remember that no single home valuation method is guaranteed to be 100-percent accurate. That's why using a combination of these resources can help you make a more informed decision about your home's worth.

For example, you might get a free CMA and conduct your own research using online valuation websites, as well as the FHFA calculator and county auditor's website. Additionally or alternatively, you could pay for a professional appraisal. Averaging together all the final values you gather could give you a more accurate picture of your property's worth.

Ultimately, many agree that the most reliable home valuations come from human beings who take the time to carefully assess your property based on a variety of factors.

"All of the evaluation tools are useful in giving an idea of the worth of your home, but an appraiser and/or an experienced agent will be the most accurate sources for determining value," Krasow says. "A trained professional will have an advantage, as a computer cannot determine intrinsic value or consider the condition and improvements you've made to your home."

See more at Bankrate

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