How to Determine Home Value

Wonder what your house — or a house you might buy — is really worth?

The short answer’s easy: A house is worth whatever someone will pay for it. The long answer depends on the market and whether you’re asking a lender, an agent or a county tax assessor.

Knowing how to calculate your home’s value with the help of online tools and trained professionals better prepares you to buy, sell, refinance, tap into your home’s equity — or even negotiate lower property taxes.

Here are five ways to determine home value.

1. Use online valuation tools

Searching “how much is my house worth?” online reveals dozens of home value estimators. The technical term for these tools is automated valuation models, or AVMs, and they’re typically offered by lenders or real estate sites like Zillow and Redfin.

AVMs use mathematical models to estimate home values, based on public records like property transfers, deeds of ownership and tax assessments, along with recent sales of similar properties in the area.

Think of an estimate from an online AVM as a starting point, not the final say. AVMs, for instance, don’t consider property conditions — a big factor in home value. A rundown house will be worth less than a similar home in good repair. And the tools have more robust data in some areas than others. So it’s always a good idea to talk to a local real estate expert to get more insight.

2. Use the FHFA House Price Index Calculator

The tool uses the “repeat sales” technique. Equipped with millions of mortgage transactions gathered since the 1970s, the FHFA tracks a house’s change in value from one sale to the next. Then it uses this information to estimate how values fluctuate in a given market.

Keep in mind the HPI calculator looks at conforming home mortgages (loans less than $726,200 and up to $1,089,300 in high-cost areas) and isn’t adjusted seasonally or for inflation.

3. Get a comparative market analysis

When you’re ready to dive deeper into your home value, you can ask a local real estate agent for a comparative market analysis, or CMA.

Though not as detailed as a professional appraisal, a CMA evaluates the home and market to estimate home value, typically for listing purposes.

Local real estate agents may provide a CMA for little or no cost, but be aware: They may do so with hopes of getting hired as your selling agent.

4. Hire a professional appraiser

Lenders require a home appraisal before they’ll approve a mortgage, but as a property owner, you can hire an appraiser to estimate home value at any time. Among other things, appraisers evaluate:

• Location: The region, city and neighborhood in which a home is located.

• Property: Characteristics of the house, including improvements and the land it sits on.

• Comparable properties: Sales, listings, vacancies, cost, depreciation and other factors for similar houses in the same market.

This information is combined to create a final opinion of value for the home and delivered in an official report.

Although more thorough than an online estimate, appraisals aren’t foolproof. If you’re applying for a mortgage and think the appraiser was unfair or made a mistake, you can file for a “reconsideration of value” with the lender.

5. Evaluate comparable properties

One thing appraisals and AVMs have in common is their reliance on the recent sale price of comparable properties, often called “comps.” Pulling comps is one way to determine market value without paying an appraiser, but use good judgment.

Think about which properties would interest a buyer if yours weren’t available. Look for homes of similar size, location, condition and upgrades. Your real estate agent, if you have one, can help find appropriate comps and interpret them.

• Browse a site where MLS listings are displayed, to find the recent or pending sale prices of comparable houses in your neighborhood.

• If there aren’t enough recent sales, look at listing prices, but remember they might not be realistic.

• You’ll need at least three valid comps to come up with a likely range of market value for your house.

Once you’ve chosen comparable properties, things get a little tricky. You’ll need to adjust for differences between your house and the comps, such as adding value to the comp price if it has more bedrooms than your house or subtracting value if its interior is comparatively outdated, for example. After adjusting values, look at your highest and lowest comps. A rough estimate of your home value is somewhere in the middle.

Keep in mind that, in a rapidly rising or declining market, home price information can become outdated quickly, and data from home sales a few months ago might not be very helpful.

Why home value is important

Estimating the value of a home you want to buy helps with deciding an offer price. And knowing your own home’s value can help with setting a listing price and estimating how much equity you’ll pocket when the property sells.

But the benefits of finding a home’s value don’t end with a purchase or sale: Refinances, home equity lines of credit, and annual property taxes are all based on home value. Determining your home’s value means greater control over these processes.

For example, you can file an appeal with your local assessor’s office — and may be rewarded with a lower tax bill — if you think your property tax assessment was too high and provide evidence to prove your case.