Figuring Out What Your Home is Worth

There’s a lot on the line when figuring out what a home is worth. Setting the asking price too high might limit the number of offers and leave the house on the market a long time. Asking too little could mean leaving money on the table. 

Even if you as a seller ends up relying on an expert to set and negotiate a price for their home, understanding the process is still important. Knowing what factors go into a house valuation and the different methods of determining home values can help you prepare for the sale. 

On top of that, estimating the value can help prioritize work needed to up the asking price. At the same time, it will also provide a realistic expectation of profit/proceeds. This can help set the budget for what they can afford in the next house.

Coming up with a house valuation is complicated. A variety of things contribute to determining a home’s worth. The main factors include:

• Size (square footage, number of bedrooms and bathrooms, etc.)
• Age
• Style
• Location
• Extra features (basement, swimming pool, fence, etc.)
• Renovations (remodeling, new roof, new HVAC, etc.)
• Needed repairs (outdated, old roof, old HVAC, etc.)
• Market conditions
• Sale price of comparable homes
• Interest rates and the economy in general

Experts can crunch numbers based on these factors all day long, but ultimately, what a house is “worth” is up to the buyer. For example, the country has been in what is known as a hot seller’s market for a while. The inventory of available homes is low, so houses have been selling for more than they would have been “worth” at other times.

There are different ways of looking at a house’s value, and each one serves a different purpose. 

Fair Market Value is the most relevant valuation when setting the asking price of a home. This is the value that a buyer would be willing to pay for a comparable property of similar size and type in the same area. All of the factors above would figure into this number because they will all matter to a buyer to some degree, and will determine how much they are willing to offer.

Appraised Value is important to mortgage lenders. It is an expert’s estimation of what a home is worth, rather than the amount the seller is likely to get for it. Bankers typically use this value to determine how much they will allow someone to borrow. Licensed appraisers look at comparable properties nearby, as well as the size, age, and condition of the home. 

Assessed Value is a dollar amount used by municipalities to determine property taxes. A tax assessment is usually lower than both an appraised value and the fair market value. It has little to do with the eventual sales price of a house.

When a seller puts a house on the market, they want to know that their asking price is neither too high nor too low. There are a few different ways they can find out what the house is worth. Some they can do on their own and others require the help of an expert. Combining a few of these methods can add to the seller’s comfort with the amount they decide to list.

There are dozens, if not hundreds of automated valuation models (AVMs) online. Websites realtor.com, redfin.com, and zillow are just a few that provide these tools. Using some basic information about the home (number of bedrooms and bathrooms, size, age, and location) along with public data about comparable homes, these sites use algorithms to come up with an estimated value. 

AVMs are a quick and easy way to estimate a home’s value, but they often leave out key selling points in their calculations such as the home’s condition, recent renovations, curb appeal, and view. These valuations might be an OK place to start researching price, but keep in mind that they are, at best, a “first guess.”

Lenders will insist that buyers have a professional appraisal done before loaning money, but a seller may want to do one too. Hiring a licensed appraiser costs about $300 to $400 and can provide some valuable information. 

If the house is for sale by owner (FSBO), the appraisal can be a guide for what dollar amount to ask. Knowing the appraised value allows the seller to negotiate confidently if bids come in too low. 

The appraiser will also typically provide a list of flaws and things that need fixing, which can become the seller’s repair checklist (provided they intend to do repairs and not sell the home as-is.) As each item is fixed, they can adjust their asking price accordingly.

Sellers can try to do a comparative market analysis themselves, but it can be challenging. Doing a CMA involves finding information about the recent sale of comparable homes. Ideally, at least three homes are necessary to do a proper comparison. Sellers could potentially run into two roadblocks: first, depending on the market, it might be difficult to find three recently sold homes that fit the bill. Listing prices can be used instead of sales prices, but because those houses are still on the market, the comparison won’t be completely accurate. 

The other problem is making sure the homes really are similar to the seller’s house. Sellers may not know about certain aspects of the houses such as recent renovations, new appliances, or high-end finishes. 

Most CMAs are done by real estate agents, and for good reason. Not only do realtors have access to local multiple listing services, they know a lot about the regions where they work. They follow the markets and housing trends closely. Agents know what is in demand and selling, as well as how quickly, and can get sellers the most for their home.  

CMA data plus the realtor’s expertise can result in determining a home value that reflects what buyers are truly willing to pay.

When sellers find a great real estate agent, they are tapping into that agent’s knowledge of home values. When they work with Berkshire Hathaway HomeServices Select Properties, they have access to an entire team’s expertise. This goes far beyond what an online calculator or even an appraisal can do when it comes to figuring out what a home is worth.