Content of the material
- How Real Estate Appraisals Work
- Income Approach
- Cost Approach
- Sales Comparison Approach
- How often should I check my homes value?
- 2. Work with a realtor
- Compare your homes to others in the area
- Evaluate a BPO
- Is a BPO trustworthy?
- Related Resources
- What Is Fair Market Value (FMV) In Real Estate And How Is It Determined?
- Should I Remodel Or Move?
- Tracking Your Homes Value
- Benefits of Knowing Your Home’s Value
- 5 ways to find out what your house is worth
- 2. Ask a real estate agent for a free comparative market analysis
- 3. Check your county or municipal auditor’s website
- 4. Identify trends with the FHFA House Price Index calculator
- 5. Hire a professional appraiser
- Visit tax assessors’ sites
- Are tax assessor sites trustworthy?
- About Chase
- Discover the REtipster Club
- How to Find the Value of a Home
- 1. Online tools to calculate the value of my home?
- 2. Get a comparative market analysis
- 3. Use a house price index calculator
- 4. Hire a professional appraiser
- 5. Evaluate comparable properties
- The Bottom Line
How Real Estate Appraisals Work
Before we get into the complexities of valuing land, let’s establish a fundamental understanding of how real estate appraisals work.
In the vast majority of real estate transactions (especially when financing is involved), buyers and lenders will hire a professional appraiser to verify the value of the real estate being purchased and/or financed. The appraiser will put together a comprehensive report that considers three key valuation approaches:
These are widely considered to be the most reliable methods of determining a property’s market value. In most cases, an appraiser will use at least two (if not all three) of these methods to come up with their final conclusion. Here’s a quick overview of how each of them works:
The idea behind this approach is to determine the amount of ongoing income (i.e. – rent or lease revenue) the subject property can be expected to produce. In order to determine this number, an appraiser will look at the “market rent” in the area. In other words, what are similar properties currently being rented or leased for in the same market? The appraiser will look at several similar properties (while also considering their size, location, condition, amenities, etc.) in order to get an idea for the amount of revenue the subject property could feasibly produce.
With this approach, the appraiser will try to determine what it would cost to rebuild the exact same structure from the ground up. The appraiser will figure out an estimated cost of construction, based on today’s prices (minus depreciation, plus land) and use this to come up with a measurement of the property’s value.
There are a lot of big assumptions that live inside this approach (namely, the cost of building materials, and the assumption that nobody will ever pay more for a property than the cost of the improvements). The cost approach is an important consideration – but it’s almost never sufficient to use this approach all by itself to determine a property’s fair market value.
Sales Comparison Approach
With this valuation method, the appraiser will look at the recent sales figures of similar properties in the area (i.e. – the prices that similar properties have sold for in recent history). With this approach, the appraiser is making the general assumption that a normal buyer will not pay more for the subject property than others have recently paid for similar properties in the same area.
Appraisers will only consider the data from properties that have actually been sold because these are concrete numbers and (in theory) they represent real purchase prices that have been paid. Appraisers usually find this data from various public records, real estate agents, other appraisers, etc.
How often should I check my homes value?
While you don’t need to revisit your home’s value too often, checking on it periodically, such as once a year, is a smart move for several reasons. Knowing the current value of your home allows you to determine, for example, whether your homeowners insurance policy still adequately covers the property.
“The value of your home also affects your taxes,” Reed says. “You might be able to lower your assessment.”
It can also be helpful to know the value of your home so you know how much equity you’ve accumulated, which could allow you to qualify for a home equity loan or line of credit, or cash-out refinance.
Of course, knowing the value of your home is very important if you’re considering selling. You’ll know where you stand with buyers, and what you could potentially take home after the costs of the transaction and taxes.
2. Work with a realtor
Realtors have their own techniques for determining a home’s value, and it can be helpful to get a second opinion to go along with the estimates from an online valuation tool. The process many realtors use to estimate a home’s value is called a Comparative Market Analysis (CMA).
A CMA includes information about comparable homes (also known as “comps”) in your area. According to Nolo, a good CMA can tell you what homes similar to yours are selling for, how long it’s taking them to sell, and what homes sold for compared to their original list price.
When working up a CMA, realtors typically look for recently sold homes that are similar in:
- Number of bedrooms/bathrooms
- Style and view
- Home type (e.g. single-family home, condo, townhome, etc.)
- Recent sales price
In preparing a CMA, realtors often look at data from the local Multiple Listing Service (MLS). It’s a database of properties in a given area that are listed for sale or have a sale pending.
In your quest to determine your home’s value, another tool you might come across is the Broker Price Opinion (BPO). In some states, you need a license to provide one, whereas you don’t for a CMA. The Appraisal Institute maintains information on state BPO laws.
BPOs are often briefer than a CMA and are more often used for short sale or foreclosure situations instead of for regular home sales. They are also slightly more likely to cost money vs. being free.
Keep in mind that a CMA or a BPO can still miss the mark on your home’s value because they may not take into account every feature of the property that affects value. That’s something you can address by following the next step in this guide.
Compare your homes to others in the areaFind out how your home measures up with homes that are for sale or recently sold. Compare market value, listing price, features and size in My Home.
Evaluate a BPO
A broker price opinion, or BPO, is slightly different from a CMA or appraisal. But like a CMA, a real estate broker (who typically has more experience than a sales agent) will also consider comparable surrounding properties when deciding on a price for a particular property.
A BPO looks at location, any costs to get the property ready for sale, or what it will cost to make repairs.
There are two types of BPOs — internal and external.
- Internal: This involves spending time inside a property to examine the home’s condition.
- External: A broker accesses the outside of the property only. Think “drive-by assessment.”
Both internal and external BPOs are helpful in the early stages of setting the list price of a home. However, it’s important to realize that some state laws limit the use of broker price opinions in specific circumstances. You can check with your state’s real estate commission, the department of licensing, a real estate broker, or even a real estate attorney about the legality of using a BPO to make financial decisions or to prove a home’s value.
Is a BPO trustworthy?
It depends! This is especially true with an external broker price opinion, which is simply a “drive-by” of the property. However, a BPO can be valuable in the early stages when estimating the value of a property.
There are times when the appraisal does not meet the sales price, and most banks only lend up to the appraised value. However, if the borrower is getting a mortgage, or has a strong credit score and a 20% down payment, they may qualify for an appraisal waiver. Jamie Rodriguez Real Estate Agent Close Jamie Rodriguez Real Estate Agent at Rodriguez Homes Currently accepting new clients Years of Experience 5 Transactions 259 Average Price Point $290k Single Family Homes 226
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What Is Fair Market Value (FMV) In Real Estate And How Is It Determined? Mortgage Basics – 4-minute read Lauren Bowling – May 23, 2022 Fair market value (FMV) in real estate is an assessment of a property’s worth in an open market. Learn how FMV is determined and what it’s used for. Read More
Should I Remodel Or Move? Home Buying – 8-minute read Miranda Crace – May 23, 2022 Wondering if you should buy a new home instead of remodeling? Explore statistics on costs and learn the pros and cons. Read More
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.
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.
5 ways to find out what your house is worth
2. 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 (CMA) for free in hopes of winning your business if you’re selling 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 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. In addition, 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.
3. 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 property 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.
4. Identify 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 their home 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.
- 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. While this will give you a general idea of the local market, it won’t drill down into the specifics of your property.
5. Hire a professional appraiser
- Best for: Those who want the most professional home value estimate, and may want to use the data as they consult with a mortgage lender
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 they work in and can provide an objective opinion of the value of a home.
- Cons: If you’re seeking a mortgage, you’ll have to pay for the appraisal the lender orders. An appraisal costs an average of about $340, but can be anywhere from roughly $300 to $420, according to HomeAdvisor.
Refinance your existing mortgage to lower your monthly payments, pay off your loan sooner, or access cash for a large purchase. Use our home value estimator to estimate the current value of your home. See our current refinance rates and compare refinance options.
Visit tax assessors’ sites
Every county and city across the U.S. has tax assessor websites where you can look up a property’s value by address, which may be the closest thing to fair-market value you can find. Properties are accessed at different times of the year to calculate property tax, and the assessed value is often not the same as the appraised or market value.
Therein lies the problem. Suppose a property is assessed in January, and you list your property in November of the same year using the assessed value. In that case, market values may have risen or fallen over that time, giving you an unreliable estimate of the actual value of your property.
Are tax assessor sites trustworthy?
Tax assessor sites are trustworthy for the information they provide. However, because there is no sales timeline or other constraints, like a free and open market, a super-accurate valuation of your property is lacking.
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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
Real estate valuation is often based on strategies that are similar to equity analysis. Other methods, in addition to the discounted NOI and gross income multiplier approach, are also frequently used. Some industry experts, for example, have an active working knowledge of city migration and development patterns.
As a result, they can determine which local areas are most likely to experience the fastest rate of appreciation. No matter which approach is used, the most important predictor of a strategy's success is how well it is researched.