You see homes selling for a lot of money in your neighborhood, and think, “I wonder what the value of my home would be?” In a changing housing market, the sold price depends on many factors, and sometimes you’re not sure where to start in finding the best information about your home.
Fortunately, our expert Jesse Allen, from Jeffersonville, Indiana, is a top producing agent who specializes in single-family homes, and knows what determines value. As a homeowner, being aware of these details can also make your life easier in making financial decisions.
How are property value estimates used?
Property value estimates are generally used by banks, insurance companies, and homeowners for determining how or if financial transactions can move forward. For instance, if the value of your home doesn’t equal the proposed financed value, it would be considered a risk for the bank. Financial institutions usually want the value to be high enough, in case they need to sell the home to recoup their investment.
If the home is underwater (worth less than the resale price) then financing would usually be considered a high-risk investment for the bank that could result in a potential loss.
Reasons homeowners might need or use a property value estimate:
- Financing or refinancing a loan
- Calculating the net proceeds of a sale
- Obtaining homeowners insurance
- Developing a home pricing strategy
- Baseline for selling a home in the future
How can I get a property value estimate?
There are many ways to get a property value estimate that range from a ballpark figure to a more detailed report. Below are the most common ways that value is typically determined:
Home Value Estimator (HVE) or Automated Valuation Model (AVM)
Online home value estimators are available on various websites such as Zillow, Trulia, and HomeLight. The automated valuation model typically uses a combination of user data and public transaction records to estimate a home value. This method will usually give you a value range for your house based on that information. HomeLight’s estimation will also compare a no-obligation cash offer through our Simple Sale platform estimating what you might receive if you placed your home on the open market using a top real estate agent.
Allen says knowing the agent option is important because online home value estimators have limitations. They lack the ability to physically see your house along with any upgrades you’ve done, whereas, an agent can physically walk through your home. He recommends scheduling a comparative market analysis for more detailed information.
A comparative market analysis, also known as a CMA, is typically done by a real estate agent who compares your property with similar homes in your neighborhood. Factors that agents consider are location, total square footage, number of bedrooms, condition, and any amenities, such as a neighborhood golf course. Some agents will charge a fee of approximately $100 to $200 to do a CMA report. Other agents will provide a CMA for free as it’s considered a way to market their services to potential clients.
When an agent uses different comps (short for comparables) they are comparing your home with recently sold homes in the neighborhood that have similar qualities. Our new story shows illustrated steps of how many websites will compare different properties.
Professional appraisers, who are state licensed, typically conduct an appraisal by walking through a home which can sometimes take up to two hours depending on its size. Appraisers will measure the house and take photos to document their findings for the appraisal that is ultimately certified.
In their analysis, appraisers will perform a visual property evaluation, consider flood zones, and compare features of similar houses. However, they differ from a home inspector and do not tend to go underneath the house or climb ladders to examine the roof, although they will visually consider shingle condition and other factors that can impact value.
Should I get an appraisal when selling my home?
While appraisals will give you specific information about the value of your house, Allen recommends waiting until the house is under contract for the buyer to incur the fee. A typical appraisal for a single-family home can cost between $400 to $500. Allen also says evaluations can differ between appraisers depending on experience, so unless a seller has a specific need for a pre-listing appraisal, he believes it’s generally best to rely on a CMA.
Situations when a pre-listing appraisal might be helpful include:
- Your house has unique features that are hard to value
- The property is in a remote location where recent comparable sales are difficult to find
- You’ve inherited a house and plan to sell the property — especially with multiple heirs who can’t agree on a price
- The property has surplus or excess land making it more difficult to value
- You’re not receiving any offers and need to reevaluate your listing price
So at the end of the day, an agent can pull really bad comps or they can pull really good comps because if I have twenty homes that are selling around a property, we choose two or three to compare it to. But if there are twenty homes, you’re going to have some on the lower side, and you’re going to have some on the higher side. And really, it’s up to the agent to determine which ones they want to use.
Can I get a CMA if I’m not selling my home right now?
Even if a client isn’t planning on selling their home immediately, Allen will often recommend doing the CMA, which can be beneficial in the future.
“We’ll ask them if they’re interested in getting a comparative market analysis and they’ll say no, we’re not selling for a year or two. And so my answer to them is always well, hey, let’s go ahead and have one done now. You know it takes us a little bit of time to do, but it’s really fun for the seller, and for us, because we can see what the current value of your home is or what a buyer would pay for your home in today’s market,” Allen explains. “And then, whenever we do it again in six months or a year, we can see if the value has gone up or down, so we know if we’ve made the right decision by waiting, or if we’ve made the wrong decision by waiting.”
Allen recommends interviewing different agents before deciding on who should list your home. Since CMAs can vary in their pricing strategies, one agent might go below market value to encourage multiple offers or say it’s worth a higher amount in order to win the listing.
“So at the end of the day, an agent can pull really bad comps or they can pull really good comps because if I have twenty homes that are selling around a property, we choose two or three to compare it to. But if there are twenty homes, you’re going to have some on the lower side, and you’re going to have some on the higher side. And really, it’s up to the agent to determine which ones they want to use.”
What factors impact appraised home value?
Many factors in the housing market can impact and potentially increase your home value. Below, we have listed the most common items you typically are unable to change, and those you can address to help add value.
Factors you can’t change
- Location – unless you physically move the house it will stay in the same neighborhood
- Supply and demand – whether it’s currently a buyer’s or seller’s market is out of your control
- Age of home – it was built in a particular year and it will continue getting older each year
- Real estate comps – whatever the houses sold for in your neighborhood are on record
Factors you can change
- Size and livable space of your home – you can remodel to increase your square footage
- Condition of your home – avoid deferred maintenance by consistently managing the upkeep
- Upgrades and updates – renovated kitchens and bathrooms can add significant value
What outside factors impact property values?
Additional factors can impact both the seller’s and buyer’s behavior and ultimately a home’s value during the purchasing process. Some of these factors include:
- Interest rates – since interest rates have increased, Allen says people who previously put their home purchase on hold are searching again after adjusting to the higher rates
- Zoning regulations – an industrial area near your home could impact noise and traffic
- The economy – if unemployment and inflation are high, this can affect affordability for buyers
- Supply chain and material costs – less construction decreases housing supply
- Politics – if new regulations and taxes increase that can make affordable housing unattainable
- Disasters – floods, earthquakes, and hurricanes can destroy property and decrease value
- Hazards – trash dumps and power plants that are nearby can diminish a home’s value
Other recommendations to help increase your home’s value
“You don’t have to remodel every bathroom or every kitchen. In order to maximize your profits, there’s a large amount of money to be made just from cleaning up your house and organizing it, and making it look more spacious than it is. A lot of people just collect knickknacks and stuff over the years and they don’t see it because they live there every day,” Allen says.
Bottom line: Get to know your home’s value
On your quest to estimate the value of your property, here are some key actions and considerations:
- Get a ballpark initial value – HomeLight’s HVE is easy to use and free as a starting point
- Consider a CMA – whether selling or not, it’s a great way to see current value to plan or compare
- Pre-listing appraisal is optional – when you’re under contract, the buyer’s lender will order one
- Some factors you can’t control – location, market conditions, economy, and natural disasters
- Embrace what you can change – clean, declutter, organize, and avoid deferred maintenance
If you’re thinking of selling, and want to find out more about the value of your property, HomeLight’s Agent Match platform can connect you with a top-performing agent in your market who can provide a CMA and expert insights on how to add value to your home.
Header Image Source: (Jonathan Cooper / Unsplash)