How To Determine The Right Value Of Your Home?
When selling your home, one of the most important questions that come up is; how much can I sell my home for? In this blog, we will discuss standard practices used by real estate agents and appraisers to determine the value of your home. We will also discuss what factors, directly and indirectly, impact the value of your home.
What Is A Home Value?
Home value has a slightly different meaning if you ask a homeowner, appraiser, or tax assessor. But in most cases, home value means the amount for which a house would likely sell, otherwise known as the current market value.
What Factors Affect The Value Of My Home?
Unlike other assets, such as your car, a home often appreciates over time. In general, real estate appreciates because there’s only so much space for new development. As time goes on, there’s generally more demand for less land, driving up value.
When you work with a real estate agent, part of their job is to provide you with an accurate value price point for your home. This is why it’s so essential to select an agent that has experience and is familiar with your neighborhood. To determine the right price for your home they must do their research, some of the most common practices involve looking at the following items.
- How much the house sold for in the past
- Quality of the neighborhood
- Number of homes available and the strength of the economy
- Tax assessment
- Square footage
- Age and condition of the house and property
- Most recent homes sold in the neighborhood
Other Factors that Affect Real Estate Prices
There are several factors on how real estate prices are determined. These factors affect the housing market which certainly impacts the price of your home as well.
There is the phrase “location, location, location” but what does this mean in practical terms when it comes to property prices? Economists encapsulate “location” in something called “hedonic pricing” – for most homes, this translates to some key factors that impact your life and your lifestyle:
- Quality of local schools
- Proximity to local employment opportunities
- Proximity to social, shopping and recreational centers
These three preferences – proximity to school, work and entertainment/shopping — are a trinity that make for immensely valuable property.
Updates and Upgrades
While some buyers actively seek out fixer-upper properties, most homebuyers prefer a house that is move-in ready – and they are willing to pay a reasonable premium for that comfort.
If you are selling your home and want to get top dollar for it, you might want to consider doing some updates/upgrades to your home. These are some of the top upgrades and updates that will get you the most return on investment:
- Remodeling the kitchen or bathrooms
- Bathroom Addition
- Reinventing a Room
- Adding Energy Efficient Windows
- Deck Addition
- Energy-Efficient Insulation
- Basic Updates: fresh paint, new flooring
In some hot markets, buyers may forego their right to an inspection report but that’s a risk that most mortgage lenders won’t underwrite.
Comparable properties, sometimes called “comps”, sold in your area also impact your own home’s market value. Appraisers and real estate agents look at recent sales of homes with similar features to use as a benchmark against your home’s potential price.
Macro-Factors Affecting Home Prices
A lot of factors can help predict the price your home will receive when you put it up for sale. Ultimately, it’s worth how much a buyer will pay for it:
The strength of the overall economy significantly impacts the real estate market as consumers’ ability to support housing prices largely depends on key factors like GDP, unemployment, and income growth.
The smaller the monthly payment, the more “affordable” a loan is to prospective homebuyers; this fact can increase the size of the mortgage for which homebuyers are eligible to get which, in turn, might drive up property prices.
The housing crisis created an appealing environment for investors with an appetite for residential real estate. The increased volume of foreclosures and short sales provided both domestic and foreign investors with the opportunity to snatch up inexpensive properties to either rent out or renovate and resell at a profit.
Do I Need An Appraisal?
The appraisal is the real estate industry’s formal process for pricing a property. All states require appraisers (for any federally regulated lender) be licensed or certified by an organization accredited by the Appraiser Qualifications Board (AQB). Whenever a loan is involved in the financing of a property purchase or home equity borrowing, an appraisal is almost always required. Most lenders won’t approve a loan for more than the appraised amount, so if the assessed value falls short the seller either needs to lower the price or the buyer needs to put extra money down to decrease the loan amount.
The purpose of a property appraisal is for the appraiser to see firsthand the home’s location, the quality and condition of its construction, the home’s amenities, and special features that may affect the property’s value.
Based on a survey by HomeAdvisor, the national average cost of a professional appraisal is about $335. Most people pay between $311 and $404, although some will pay as little as $250 or more than $450 for an appraiser to spend a few hours on their property.
By now you may be asking, so who pays for the appraisal? Typically is the person buying the home as it’s in their best interest to secure that they are paying fair market value for your home, but also to secure the loan as it’s explained above.
However, some homeowners may choose to have their home appraised before they put it on the market, this case scenario is more common when the home is located in a remote area where there are not enough comps available or the home has many unique features and upgrades.
What Are the Major Components Of An Appraisal?
Each appraisal has four major components, each of which plays a part in determining the property value:
#1 The Property Description
To identify boundaries of the property using things like rivers, streets and other landmarks, and the size of the property (in acres).
#2 Market Information
This includes things like location (a home that is close to local schools is worth more than one which is farther away) and demographics of the surrounding area, both at the time of the appraisal and in the future.
#3 Highest and Best Use
The value of the home depends on how the owner intends to use it. In general, a property which will be used as a residence has the highest value. In some instances, however, an appraiser will assign a higher value to land which will be redeveloped.
This is the most important part of the appraisal in which the appraiser, based on the entirety of his analysis, assigns a value to the property. Appraisers can use any of the three major valuation methods to assign that value.
- The first, called “the comparable approach,” looks at the selling price for similar properties in close proximity, making any necessary adjustments based on observed differences with those comparable properties.
- The second, called the “cost replace method,” estimates how much it would take to rebuild the property.
- The third, called “income capitalization,” assigns a value based on what someone would pay for the property in relation to how much income it would generate, and is generally reserved for investment properties.
Understanding how and what makes up the value of your home is crucial to be able to determine what’s the best price for your home before you put it on the market for. Pricing your home either too high will deterred potential buyers from making an offer, but pricing it too low and you could be leaving money on the table. To learn more on how to strategically price your home, check out this blog on “The importance of pricing your home right“.
Want To Know What Your Home Is Worth?
If you would like to know what is the value of your home, give The Carol Royse Team a call. We’ve helped many homeowners strategically price their homes to sell Fast and For Top Dollar! Our processes have been thoughtfully designed to make the selling process for our customers a stress and hassle-free experience.