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All You Need to Know About Calculating Property Value Accurately

"What is my home worth" is a question that any homeowner should be able to answer at any given time. 

It gives us insight into our personal finances such as net worth, how many savings we have and how liquid those savings are.

Property value is not static, it can change within a short period of time so it is important to keep tabs on the developments in the neighbourhood and the real estate industry. On the other hand, real estate is one of the most stable and secure investments that we can make since property values almost always increase.

There are many factors that affect the value of a home and every homeowner should be aware of them. This helps us prevent drops in our property values and is also a guide for how we can increase the value.

Here is all you need to know about what increases or lowers property value, how to calculate property value and the best home value estimator tips and services. This extensive guide covers all the details we need to know to answer the question: what is my home worth?

Home Valuation Methods

There are several ways to determine the fair selling price of a property. The three most common home valuation methods are a comparable market analysis (CMA), an automated valuation model (AVM) and a professional appraisal. These are the most accurate methods for valuing a home and each method should give similar figures.

Another great tool you can check out is a online Reverse Address Lookup

A less accurate but quicker alternative is to check the property tax assessment or making quick calculations based on recently sold properties in the area. These two methods are suitable for an estimate but are not recommended for official purposes.

Each home valuation method is explained below.

what is my home worth

Comparable Market Analysis

 When deciding what is my home worth on the current market, a comparable market analysis is a key step in the process. A comparable market analysis, or CMA for short, is performed by a professional realtor. They look into the valuation of similar properties in the area that have been sold within the last year. However, it is far more detailed than simply comparing the home to former listings in the area because the real estate agent wants to get the price as accurate as possible.

In a comparable market analysis there are 3 selling price estimates; the previous selling price of the home, the comparable market price and the current market trends. These 3 figures is what determines the most likely price range.

Finding out the estimate based on the property’s sales history is simple. The real estate agent can ask the owners what they paid for the property and then verify that price in a database. This figure is a base point. If the property is still in good condition and the market values in the neighbourhood have risen, then the new market value is likely higher than that original selling price. Of course, the opposite can be true, as well.

The next step is comparing the property to recent former listings. To reach the most accurate selling price of a property, the real estate agent gathers as much data as possible about the home being valued and then tries to find the most similar property type that has been sold no longer than 12 months prior. As we can imagine, finding an identical property is highly unlikely. That is why the realtor starts by gathering as much detail about the home, as possible - this allows for the most precise adjustments.

When performing a CMA, the following property information is required:

 Once the realtor has all the above information, they can start compiling a list of comparable properties in the same area. At first, the realtor will look at homes that have been sold in the recently, no longer than 12 months ago. If there are limited options to compare with, the realtor might also look at properties that are currently for sale. However, that does make exact calculations more difficult.

When comparing to current listings, the real estate agent gets a better picture of selling prices that are too high rather than selling prices that are appropriate. For example, there may be a similar house that has been on the market for the last 4 months without a proper bid. If the house is on the market for $480,000, then the real estate agent knows that a more appropriate selling price is less than that. However, they will still have to look at other factors to determine the exact price.

Once a list of comparable properties is gathered, it is time to go over the details of each property. As mentioned, no two buildings are exactly the same. So, the real estate agent will compare the details from the list above and adjust the price accordingly. For example, an extra bathroom would increase the property value while a less desirable location would lower the property value.

The final step is analysing the real estate market trends. For example, there might be a higher demand for a specific property type, the neighbourhood might be more popular among a certain age group or certain construction details are more sought after. This estimate is a good predictive figure, meaning how the value of the property might change in the future. This is especially important when promoting the house as an investment.

Once these 3 figures have been determined, the real estate agent will create a well-structured, easy to understand report. That final product is what we call a comparable market analysis.

Automated Valuation Model

what is my home worth

 An automated valuation model, or AVM, is a service that offers immediate estimate of what is my home worth. These services combine database information with mathematical modeling and the information provided by the user. Entering automated valuation model into our search engine should bring up several options, many of which are even free.

Using an automated valuation model is a great way to get an estimate of the home value. The estimate is given instantly so there is no need to wait for a report from a real estate agent or to perform elaborate research ourselves. It is very convenient and can be highly informative.

Many of the AVM service providers are real estate agencies which means that using their property valuation model gives you an estimate based on the databases that they use. This is also where the disadvantages of using an AVM comes in. If the database is not up-to-date or inaccurate, the estimated property value that the AVM gives will also be incorrect.

Another disadvantage of determining what is my home worth using an AVM is that these services rarely look into the details. As mentioned in the CMA explanation, smaller elements like renovations and design details also have an effect on the market selling price. These systems also do not directly take into account specific market trends so the given value might be lower or higher than what the general public is willing to pay for it.

There is one way to determine which automated valuation models are more accurate than the rest. This can be derived from the confidence score, if that score is even given, that is. The confidence score is how accurate the AVM figure is thought to be. For example, an 80% confidence score means that the AVM figure only differs by a maximum of 20% from the actual market selling price. Obviously, the higher the confidence score, the more trustworthy the AVM.

Professional Appraisal

 Having a professional appraise the house is a mandatory step when selling our house. During an appraisal, a state certified professional will come visit the home, inspect all the factors affecting the home value and conclude with what they consider the value of the building.

A professional appraisal usually occurs when a home is already in escrow. This is for two reasons. First of all, a professional appraisal is quite costly whereas a CMA or AVM are either very affordable or even free services. The second reason is that appraisals are usually done for tax or mortgage purposes and less so for determining what is my home worth. That is why there might also be difference between the appraisal value and the actual selling price.

A professional appraiser looks at many of the same elements as a real estate agent would during a CMA but the appraiser pays more attention to the general trends and how the value has and is changing over time. The appraiser looks at the neighbourhood elements that affect the property value, the condition of the property and also the listing value of comparable properties.

Depending on the purpose of the appraisal, the time period that is being looked at might also differ. For example, for tax purposes it is more common to look at the property value at a past date, for mortgage purposes the period would be more current and for investment purposes the appraisal would take into account the most likely future trends. The time period that is being looked at will then also have an impact on the property value given by the professional appraiser.

Property Tax Assessment

A property tax assessment is conducted by the local authority in charge. Since that authority is responsible for a large area, these property tax assessment don’t occur frequently. In most cases, the assessment only occurs every few years so it is less accurate.

Another reason why it is less accurate is that the local authorities generally only use their own version of an AVM. This means that the assessment is based on general data and does not take into account any specific details of the building in question. It is more an estimate based on the overall property value of the area.

Since the property tax assessment is more of an estimate, many homeowners decide to contend this valuation when they believe that their property taxes are too high. In such a case the homeowner may request a new assessment which would require the professional state appraiser to visit the property and perform a more in-depth study of the property.

Although the property tax assessment is not the most reliable source for determining the market selling price of a house, it is still relevant. It gives insight into the property taxes that that the new homeowners will have to pay which is information that they will want before closing a deal.

Quick Calculations

 We can perform our own quick calculation to answer what is my home worth. However, it will only be a rough estimate and far less accurate than the CMA of a professional real estate agent.

For our own rough estimate, we need to compile a list of comparable properties in the neighbourhood, the selling price of these formerly listed properties and the square footage of our own home and the comparable properties. Refer to the list of elements in the CMA explanation to find a similar property. For a more global estimate have at least the number of bedrooms, bathrooms and property type at the ready.

To calculate for the average selling price of similar properties in the same neighbourhood, add up all the given selling prices. Then, divide that figure by the number of listing being compared. The final answer is the average selling price.

Then, find the average square footage of the formerly listed properties in the area. Divide this number by the total number of listings included. This final figure gives the average square footage in the neighbourhood.

Then, take the average selling price and divide it by the average square footage. That figure gives us the average price per square footage in the neighbourhood. Multiply the price per square footage by the square footage of our house. That final figure is an estimate of what is my home worth.

Factors that Increase Property Value

As mentioned, certain design details or neighbourhood facilities can drive up the price of a house. That is why there might be price difference between two very similar houses on the very same street.

The factors all increase the value of a property. Some of these factors the homeowner actually has control over while other factors are related to the location.

Building Factors

1. Energy Efficiency

The more energy-efficient the home, the more desirable it is. With many new regulations promoting greater energy efficiency at household level, it is important for homeowners to have a house that is easy to heat and cool.

Excellent insulation and solar panels are elements that considerably raise the selling price of a home. Energy-efficient appliances or a smart home system can also increase the value.

2. Updates and Renovations

Older buildings definitely have their charm but as humans we are still creatures of comfort. So, if we are trying to sell an older building it is best to first invest in certain upgrades and renovations to modernize the living space.

A new kitchen with modern appliances and a fresh bathroom are the most important upgrades to make to an older building. This does not mean that the architectural history should be erased but rather adjusted to fit a more modern lifestyle.

3. Building Year

 Overall, newer buildings sell at higher prices than older buildings. This is related to factor 2: updates and renovations. The new buyer will take into account the cost of any necessary maintenance and upgrades such as plumbing or heating and so ask for a lower selling price.

On the other hand, once a building has received the label of heritage building, the price shoots up again. It is worthwhile to check with the local council whether the building has any cultural worth.

4. Number of Rooms

In general, the larger the house, the higher the selling price. However, a house of similar size but with more bedrooms and bathrooms will still be valued higher.

5. Unique Elements and Extra Amenities

Everybody loves originality which is why buildings with a rare feature sell at a higher price. Examples of unique elements are a fireplace or a tower. Extra amenities that also drive up the price are a swimming pool, home gym, home theater, garage, rooftop and so on.

6. Curb Appeal

 Curb appeal refers to how a house looks from a street view. First impressions really do matter and a house that looks beautiful from the street sells better. So, consider planting trees or shrubbery if there is a front yard and strategically place outdoor lighting.

7. Space for Expansion

Couples that buy their dream home are likely looking for a place that they can spend the rest of their life in. Since we have different needs at different stages of our life, there should be some flexibility in the available space.

Buildings with potential for expansions or big renovations also show greater potential for new buyers. It gives them the feeling that they can further personalise the house.

Neighbourhood Factors

1. Within a Great School District

Parents are willing to pay much higher prices if it means securing a spot at an highly rated school district. The price goes up even higher if the location is walking distance from that school.

2. Near Greenery

 People love nature which is why homes near parks, woods or bodies of water are significantly more expensive than a home surrounded by concrete and other buildings. Even just a few trees on the street can drive up the price.

3. Near Amenities and Entertainment

Public amenities such as supermarkets and shops make the location of the house more convenient and so also more desirable. Buildings near a lot of entertainment such as restaurants, bars and theaters are also very popular, especially in urban areas.

4. Current Demographic

 Depending on the type of buyer, the neighbourhood demographic can influence the selling price. For example, one-bedroom urban dwellings are currently in higher demand than family houses in the suburbs. This is because the millenial generation is starting a family later and have no need to buy large homes. As a result, suburban homes are valued lower because of the lower demand.

Factors that Lower Property Value

Just as certain additions or characteristics can drive up the price, there are also plenty of factors that actually lower the value of a home. It is smart to identify these factors and address them before putting the house on the market and becoming disappointed with what is my home worth.

Building Factors

1. Run Down Building

Homes need regular upkeep such as plumbing and construction maintenance. Houses in a poor condition sell at much lower prices because the new buyer will have to invest more money on renovations.

2. Poor Energy Efficiency and Wasteful Use of Resources

 Heating, water and electricity bills can be considerable so a new homeowner will also consider the monthly costs of living in the house. A house that has poor insulation would increase the heating bills, a house with old plumbing would lead to more maintenance costs and inefficient electrical appliances would hike up the electricity bill. These are all costs that a new homeowner wants to avoid.

3. Dark Rooms

Spacious and airy rooms are more attractive than small dark rooms. Homeowners want a sense of open space in their house so a lack of windows and many cramped places lowers the selling price.

4. Limited Space for Renovation

As mentioned, a house bought to last a lifetime will likely undergo several renovations to adjust to the needs of the family living in it. So, if there is little unbuilt space left or if the building regulations prevent major construction, the house is less flexible. Potential buyers might not see themselves living in the house for as long and so are less willing to pay a higher price.

5. Limited Space

Although there is a rise in demand for one-bedroom apartments, fewer rooms still generally mean a lower selling price. Perhaps the average price per square footage is higher in one-bedroom urban dwellings compared to multi-bedroom suburban houses but a two-bedroom apartment with the same square footage as a one-bedroom apartment would still fetch a higher price.

Building Factors

1. High Crime Rates

 People want to feel safe where they live so a neighbourhood with a bad reputation will be low in demand. On the other hand, once the local authorities set up a programme so handle the situation and the neighbourhood is starting to show progress, the price might go up.

This is because such buildings have good investment potential. The average price per square footage is still relatively low compared to other parts in the area but is likely to increase once the programme is showing results. This is one of the factors at play in gentrification.

2. Poor Neighbourhood Upkeep

Neighbourhood upkeep can refer to a variety of elements in the public space. A lack of greenery, a lot of littering, rundown buildings and poor street maintenance all decrease property value.

3. Nearby Noise

Overall, people prefer a quiet area over a noisy area, even if it is in the middle of the city. Thus, areas suffering from noise pollution generally have lower prices. Examples of causes of noise are a factory, a highway or busy street, train tracks and wind farms.

4. Lack of Amenities

There is a delicate balance between the value of a property increasing because of nearby greenery and the value decreasing because of a lack of nearby amenities. In general, remote areas with less access to daily amenities such as supermarkets, health services, schools and so on have a lower price per square footage.

5. Risk of Flooding or Earthquakes

Many regions in the world have areas that are at higher risk of flooding. These regions are often coastal areas where most of the world’s cities are located but may also be areas near rivers. Houses that are built in zones with a flood risk are valued lower.

Certain parts of the world also have a higher risk of earthquakes. Although earthquakes occur every day and generally cause little damage, being built near a fault may affect the price of the house.

Property Value vs Market Value

 Although these two terms are often used interchangeably, there is an important technical difference between them. The assessed property value is unbiased and looks strictly at the physical elements that would increase or decrease the value of a building.

The market value, on the other hand, is a reflection of economic conditions and supply and demand. It may not be an accurate representation of the actual value of the property. To illustrate, house prices drop during periods of economic downturn but rise again during economic growth.

Similarly, changing trends in demand affects the selling price of a building. As mentioned earlier, urban dwellings are currently in higher demand than suburban houses while 30 years ago the opposite was true.

In other words, the market value of a property could be higher or lower than the assessed property value at any given time. The real estate market is constantly changing and is strongly affected by economic and demographic trends.

This is also why real estate is often considered an investment. Buying in when the house prices are low might mean a large profit when selling the house during a period of high demand. Equally, buying a home during a period of high interest rates and in a seller’s market could mean that the selling price in a few years might be lower than the initial investment.

Knowing this, it is important to reflect on the potential difference between the property value and market value when researching what is my home worth. It might be worth it to hold out on putting our home on the market if the economic conditions are not in our favour.

How to Find a Professional Assessment

 For the most accurate home valuation assessment, we have to place a request with either a professional appraiser or real estate agent that offers a comparable market analysis. An automated valuation model may give us a good estimate of what is my home worth but an actual professional coming in to inspect the house is much more reliable.

This is what you need to know when looking for a professional assessment of our home value.

1. Decide Between a Real Estate Agent and Professional Appraiser

A real estate agent and a professional appraiser will value the house from different viewpoints. The real estate agent will perform a CMA to determine the market value of a home while the professional appraiser looks at the property value.

A professional appraisal is a mandatory step when selling a house so it is an unavoidable cost. Do keep in mind that the appraiser is also there to evaluate the financial risk of a mortgage and not there to help us sell the house.

2. Licensing

Whether it is a realtor or an appraiser, they are both professionals that should have the appropriate licensing. Check with the local authorities or trade associations on their membership and qualifications. This is an indication of how reliable their assessment is.

3. Check Their Local Knowledge

The building itself is not the only thing that affects the value of a home, the neighbourhood also influences the value. A real estate agent or appraiser with local knowledge will then be able to give a more accurate estimate.

4. Prepare for the Assessment

Before calling in an assessor, we should have some knowledge on the influential factors and also have a ballpark figure in mind. These assessments cost money so addressing the devaluing factors before reqeusting an assessment can help us save money in the long run.

what is my home worth

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