How to Determine the Fair Market Value of a Home

Why Your Home’s Value Matters

The value of your home changes constantly depending on market conditions and buyer demand. If it’s been a while since you’ve done a home value estimate, it may be time to do one. Depending on what you want to do with your home or your mortgage loan, there are several good reasons to figure out how much your home is worth.

  • Dropping private mortgage insurance: Mortgage lenders are required to drop PMI on conventional loans once your loan amount reaches 78% of the original value of your home. But if your home value has increased, you can ask the lender to remove the monthly charge if your mortgage balance is 80% or less than the current value of the property.
  • Refinancing your loan: If your home value has increased, you may be able to qualify for a lower interest rate on a mortgage refinance because the lower loan-to-value ratio presents less of a risk to the lender. It can also help determine how much money you can get from your equity in a cash-out refinance.
  • Applying for a home equity loan or line of credit (HELOC): If you’re hoping to tap some of your equity with a home equity loan or home equity line of credit, a new home-value estimate can help maximize the amount you can borrow. 
  • Listing the home: If you plan to sell your home, an estimate will help you list your home at an appropriate price. If the price is too high, you could have a hard time selling, and if it’s too low, you could end up leaving money on the table.
  • Determining how much you can afford: By subtracting your mortgage balance from the market value of your home, you can gauge how much equity you have in the house, which tells you how much cash you’d have to make a down payment on a new home.

In some cases, it can be worth figuring out what your home is worth for your peace of mind. Maybe you’re casually thinking about one of the above actions but aren’t sure. Or you’re updating your net worth and want to get an idea of how much equity you have in the home.

My homes value went down. What should I do?

While home values across the board have increased, there could be factors beyond the homeowner’s control that can cause prices to decline.

“Local political issues, climate changes, transportation and employment opportunities — or lack of these last two things — can influence home values,” says Gerard Splendore, an associate broker with Warburg Realty in New York City. “Selling may not be a good idea, unless it is apparent that values will continue to decrease.”

If you can wait out a downturn rather than making a rash decision, that may often be best.

“Home property values are typically influenced by the current economic climate, as well as the supply of houses on the market, which will change over time,” Duffy says. “If you can prolong moving, housing prices will eventually start to rebound.”

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How can I add value to my home?

You don’t get a second chance to make a first impression, and this bit of wisdom can apply to your home and its value.

“Your property’s curb appeal does make a difference,” Duffy says. “Make your home welcoming and tidy — cut your grass, trim any shrubs and add some new plants or flowers.”

A fresh coat of paint either on the interior or exterior of the house will more than pay you back for the money spent, Duffy adds: “This is one of the most cost-effective ways to improve value.”

A minor bathroom or kitchen update (as opposed to large-scale renovations) can also help improve your home’s resale value. You can simply replace an outdated sink, old tiles or dated light fixtures to give these spaces a refresh.

“It also pays to install a new garage door,” Duffy says. “Some reports estimate a new garage door can increase home values by 4 percent — great curb appeal does matter.”

What’s the most accurate home valuation website?

In its analysis of the top home valuation sites, The Balance selected Redfin as the most accurate home valuation website. While its margin of error for off-market properties is slightly higher than Zillow's (7.61% vs. 7.5%), Redfin’s estimates update data every day compared to Zillow’s “multiple times per week.”

Step 5: Look at some comps from your neighborhood

If you know of some homes in your neighborhood that recently sold, you can see what the asking price was, and once the house sale has closed, you’ll be able to look online at the sales price.

Home values can be different from neighborhood to neighborhood, or even from block to block, so reviewing recent sales of comparable homes (known as “comps” in the real estate industry) in your area can help you assess your own home’s value.

Finding and analyzing comps on your own isn’t going to give you a fully accurate picture, nor will it provide information on current housing market trends, but it can be a good tool for determining a home’s value.

Source: (hedgehog94 / ShutterStock)
Source: (hedgehog94 / ShutterStock)

Benefits of Knowing Your Home’s Value

Knowing the value of a home can help homeowners plan their finances more accurately. 

If you bought a home for $200,000 and its true market value is now $350,000, your equity has likely increased. You can then use this equity to secure a home equity loan, which can be used to buy a second home, fund a renovation project or consolidate debt. Use the Discover Home Loans Loan Amount Calculator to see how much you can borrow with a home equity loan.

You can also use the new value of your home to calculate your cash-out refinancing options. With cash-out refinancing, you can rewrite your mortgage loan for a larger amount and take that amount in cash. Use the Discover Home Loans Cash-Out Refinance Calculator to input the current market value of your own and learn more about your options.

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Key factors that influence home value

Home values are usually based on comps, but it’s important to consider a home’s key factors when choosing comps to use. For instance, if a similar, nearby home sold recently, but it’s in a slightly better location, it’s probably worth more. How much more? That’s up to the buyer to determine.

Location

Many features of a home can be changed by the owner — like finishes and even home size. But, you can’t change where the home is located. That’s why location is such an important factor in a home’s value. Outside of standard market appreciation, a home’s land will only increase in value if the area around it improves. For example, 64% of buyers say being in a walkable neighborhood is very or extremely important, according to the Zillow Group Consumer Housing Trends Report 2021.

Here are key location factors that can increase a home’s value:

  • Proximity to urban core
  • Cul-de-sac location or dead end (less traffic)
  • Farther away from railroad tracks, airports, freeway noise and power lines
  • Near parks or green spaces
  • Sidewalks and walkability
  • Proximity to public transit
  • Waterfront, water or mountain views

Job market

When the job market is strong and incomes are growing, people may look to buy a home, or move into a newer or larger home, increasing the demand for homes and boosting competition among buyers.

Property taxes

Budgeting buyers look at their monthly housing payments including taxes, so homes with very high property taxes can be out of reach for some buyers. However, property taxes help pay for public services that benefit the local community. As a buyer, you’ll have to determine the value of savings versus local benefits.

Interest rates

Buyer demand tends to be higher when long-term interest rates are lower, as low interest rates give buyers more purchasing power. Conversely, when interest rates are high, buyers may have a harder time paying off other debt, which can impact their ability to buy a home. When demand is lower, housing prices follow suit.

Home maintenance

While not directly related to a home’s value, buyers may also want to consider any maintenance needs they’ll have to pay, especially in the first year of ownership. For example, will they have to replace the water heater or service the HVAC system? Consider these potentially hidden costs of buying a home when planning your budget.

How to Find the Value of a Home

There are many resources homeowners can use to find out property values.

1. Online tools to calculate  the value of my home?

Homeowners can use a home value estimator tool to learn the value of their house. The digital tools use your address, data from comparable homes in your area, and specific questions about your home, such as features and renovations, to estimate your home’s worth.

2. Get a comparative market analysis

Real estate agents can provide you with a comparative market analysis. This is their estimation of your home’s value based on an evaluation of your property and market trends. This is commonly done before listing a home for sale.

3. Use a house price index calculator

The house price index (HPI) calculator uses data from mortgage transactions over time to estimate the value of a given house. This value is projected based on the purchase price of the home and the changing value of other homes in the area.

The house price index calculator is useful for seeing how much a house has appreciated over time and estimated future changes in mortgage rates.

4. Hire a professional appraiser

You can hire a professional appraiser to assess the appraised value of a house. This appraised value can be used to list the house at an accurate price, refinance, or determine the financial effects of a remodel.

5. Evaluate comparable properties

If you don’t want to pay an appraiser yet, you can research comparable properties in your area to estimate the fair market value of a home. Browse sites with MLS listings to find the prices for homes like yours. Consider square footage, age, condition, outdoor space, amenities, and the number of bedrooms and bathrooms during your research.

The Bottom Line: Keep Track Of Your Home Value

Before you can sell your home, you need to know what it’s worth. Knowing your home’s value will help you determine an accurate listing price and, hopefully, will help your home sell much faster.

You can determine home value by using an online valuation tool, hiring an appraiser, using a real estate agent, or checking comparable homes in your area. Using an online valuation tool or pulling comps in your neighborhood is easy and quick, but you’ll receive more accurate results using a REALTOR® or appraiser.

If you’re looking for ways to increase your home value, be sure to check out our guide for more recommendations. Or if you’re looking to refinance your home, you can get started today with Rocket Mortgage®.

2. Conduct a CMA

Run a comparative market analysis (CMA) on the property. A CMA will match your property to comparable properties to build a statistical breakdown of what your home may be worth, in relation to similar nearby properties with matching or similar features. Fair market value largely factors in other properties, much like a “blue book” compares similar vehicle features to comprise an estimated value for autos.

How comps determine home value

In order to determine a home’s value using comps, three to five comps are collected and grouped together. Then, a report is generated determining a market value, based on the sale prices and details of these homes. You could get two types of reports, based on who is doing the calculations:

  • Comparative Market Analysis (CMA): This is a report typically generated by a real estate agent, used to come up with an accurate list price/estimate of a home’s sale price.
  • Appraisal: This is a report generated by a licensed appraiser and it’s typically used for financing approval.

Keep in mind that the market value you receive from your agent or an appraiser can differ depending on a few factors.

Market speed: If your local real estate market is moving slowly, you might have to depend on comps that are older or less relevant, which could affect the results.

Comp selection: When multiple relevant comps are available, different agents or appraisers might choose to use different comps, which can affect the outcome slightly.

Valuation of features: The agent or appraiser will add or subtract value based on the features of a specific home, and different agents or appraisers may assign slightly different values to home features.

Subjective human nature: CMAs and appraisal reports depend on humans to evaluate and calculate the home’s value, which means you won’t get the same outcome every time. Remember, the true value of a home is how much a buyer is willing to pay for it.

What’s valuable to one buyer isn’t valuable to another

The value of some home features just comes down to individual buyer preferences. If a swimming pool is factored into the price of a home but you plan to just fill it in and re-landscape, it doesn’t make sense to pay extra for it. If you love new carpeting, it may be worth paying a little more for a house with new, high-end, wall-to-wall carpet. But if you’re going to tear it out to install hardwoods, it’s not. If your idea of home cooking is popping something in the microwave, you probably don’t want to pay a premium for a gourmet kitchen when a nice, reasonably sized one would suit you just fine.

Cost of Using One of the Best Home Value Estimator Sites

One of the best things about home value estimator sites is that most don’t charge a fee to determine a home’s value. The user only needs to go to the site, plug in their address, and continue to the results. Homeowners can make preliminary decisions without paying a professional, such as an appraiser, hundreds of dollars for a home valuation—at least not initially. For instance, if a home value estimator reveals that a home’s value is substantially lower than the homeowner thought, the user may conclude that now isn’t a good time to sell or refinance—and they didn’t have to invest any money to come to this conclusion.

Tracking Your Homes Value

We’ve watched home values go up most of our lifetimes. Rising home prices have a significant effect on our wealth, and ability to borrow. Even if you don’t plan to sell your home, watching your home’s value increase over time can be a lot of fun.

Many people have used their home equity smartly to consolidate personal debt or to invest in building a business from their home. While it’s important to always understand your asset values, try not to get attached to the ups and downs too much.

Remember, these websites and others let you watch your home’s value grow aren’t exact, and the only time you’ll get a true answer to the question “how much is my home worth?” will be when you go to sell or borrow against the home.

If you want “the real thing” – as in, a price that reflects every factor that goes into a home’s sales price – you should meet with at least 2 or 3 realtors or mortgage lenders to get price suggestions.

Chances are, a realtor will be able to offer more insight into your local market than any online real estate tool ever could.

Our Verdict

We chose Zillow as a top option because it has a database full of listings that yields estimates with a 1.9-percent on-market and a 6.9-percent off-market median error rate. Redfin is a solid runner-up choice, with a 2.24-percent median error rate for on-market homes and a 6.74-percent rate for off-market homes and an easy way to get a free comprehensive analysis.

Step 8: Get an appraisal

While it seems like getting an appraisal should be the first thing on this list instead of the last, most of the time an agent isn’t going to recommend spending the money on one unless you have a house under contract.

That being said, if you really want to get your home appraised, there’s no reason you can’t do so. There can be certain benefits to getting an appraisal for valuation purposes, especially if there aren’t many comps for a CMA in your area, or if the real estate market seems to be shifting.

Wydler, however, says there usually isn’t a compelling reason to pay for an appraisal before you sell your house.

“Short of an estate trying to take care of state requirements for a property sale, I see no use in getting an appraisal ahead of time,” he says.

“Sometimes you can get a home appraised during a certain time, and then if you need to get it appraised again for a sale, the value is different. And both sellers and buyers should keep in mind that at the end of the day, a home is only worth what a buyer is willing to pay.”

Header Image Source: (Watchara Ritjan / ShutterStock)

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