When selling, purchasing, refinancing or remodeling a home, one of the first questions that one has to answer is: “What is my home worth?”
Determining the value of a home is one of the most important pieces of information a seller or buyer needs when making a decision about selling or buying a property. Knowing the value helps buyers make an informed decision and provides sellers with the tools they need to decide whether or not to put a home on the market and how to price it to sell quickly.
Comparables and Appraisal
There are a couple of ways to find out what your home is worth: 1) obtain a comparative market analysis (CMA) prepared by a real estate agent; or 2) hire a certified appraiser to conduct an appraisal of the property. Both are considered to be an “opinion of value.”
A CMA consist of a detailed report which compares your home to similar properties as it relates to location, age, condition, size and amenities. The report compares data from the following homes:
- Active listings
- Pending sales
- Sold properties
- Expired listings
The CMA provides a price range-- low price, median price and high price. A CMA can vary between agents because of the selection of homes they believe to be comparable.
A licensed or certified appraiser provides the final word when it comes to determining a home’s value. Like a CMA, an appraisal considers similar homes and other factors. However, it requires a formal, regulated process that utilizes three approaches to determine value.
Factors that Affect Home Values
Sellers and both personal home buyers and investors can benefit from having an understanding of the factors that drive home values. Often, the functionality and style of a home have inherent value that is difficult to measure objectively but does help attract buyers to the home. These include architecture, quality of construction, and landscaping. Property values are based on other factors, including:
- Location - This encompasses community and neighborhood and is widely consider the most important factor. A home located in an attractive area that has a low crime rate, sufficient resources, efficient city services and a thriving business district, commands a higher price compared to a neighborhood perceived as unsafe.
- Schools – The quality of schools and home value go hand in hand. In a Wall Street Journal article Michael Sklarz, President of Collateral Analytics, stated that when housing prices trend down, "areas with exceptional schools tend to hold their value better than the market overall."
- Amenities – Features such as libraries, green space, bike paths and other features that can enhance property values.
- Transportation – Easy access to public transportation and to freeways for getting to work and schools and shopping have always has been pluses for driving property values.
- Zoning and planning – Community development plans and zoning decisions can have a positive or adverse effect on home prices.
In addition to the above elements, indirect dynamics like the economy, influx of new residents and natural disasters can impact a home’s worth.
Assessed Value and Last Sale Price
Do not rely on the tax information or “assessed value” to determine a property’s worth. Local County Assessor’s Offices compute this value and it varies significantly from one jurisdiction to another. Furthermore, this number may or may not have a bearing on the current market value of a home.
In addition, it is unwise to rely on the “last Sale Price” of the home. The previous buyer may have purchased at a discount or paid too much for it.
Ultimately, the value of a home depends on what a qualified buyer is willing to pay, and what the seller is willing to accept.