How Do Real Estate Agents Calculate a Home’s Value?

What’s My Home Worth? Here’s How Real Estate Agents Calculate a Home’s Value 

Here’s How Real Estate Agents Calculate Home Value

When it’s time to list your home for sale, determining the asking price can be difficult. If you’re reading this, you may have already put your address and other information into an online home valuation tool, or have the appraised value readily accessible. 

But when it’s time to put a number out to the world, having an agent that knows the market factors that go into a successful asking price is one of your greatest assets. But how do they do it?

Real estate agent’s use several different tools and strategies, like comparative market analysis, recent property improvements, past appraisals, and homeowner input to calculate a home’s value before listing it. 

Below, we’re going to go through a few methods that you can use to give yourself a good idea of your home’s value–on your own!

Comparative market analysis (CMA)

A CMA is an analysis of several factors that impact a home’s value. A CMA looks at three to five comparables (comps)—similar properties that have recently sold— within a one-mile radius to get a good idea of the value of your home.  

The CMA will look at factors like the number of bedrooms and bathrooms, square footage, number of floors, home style (ranch, two story, etc), comparable condition, and lot size.

It will also take other factors into account like the neighborhood itself, access to amenities, any issues the neighborhood has seen like crime or noise complaints, and school districts.

When analyzing comps, the real estate agent will do some calculations to get the comps as close to your property as possible. 

So, for instance, if a home sold recently and was in similar condition but had a pool, the agent will subtract the estimated value of the pool from the comp home to make the home more similar to yours.

Agents have access to the Multiple Listing Service (MLS) which will give them more information about recently sold properties than you would have access to on your own, which adds to the benefits of working with an agent

To DIY it on your own–start with a spreadsheet with 5-10 of the most recently sold, comparable homes you can find. Make sure to include columns for bed/bath count, sqft, and lot size to start with, which will help you better understand where you’re home stands in your neighborhood’s recent inventory.

You won’t need to bother looking at homes for sale, though. Listing prices can be a somewhat arbitrary metric when trying to analyze true market value, as these prices are set by real estate agents that may be working with a seller that insists on pricing it too high, or, it could be priced lower than usual to encourage a bidding war.

Past appraisals

Past home appraisals can also be used as a tool when a real estate agent calculates a home’s value. But the caution here is that in cases where the market is seeing large changes appraisals can lag behind rising home values, leading to appraisal gaps, or be too high for the given market.

If the buyer is financing the home, the lender will likely require an appraisal on the home. So getting the home value, list price, and appraisal as close to each other as possible can make the sale go more smoothly. 

Homeowner insights

No one knows their home better than the people living in it day in and day out. So, in addition to other data, real estate agents will ask for input from homeowners as well. And not just what the homeowner wants to list their home for.

When looking at comps, there may be extenuating factors that impacted comp prices that the homeowner will be aware of. For instance, maybe the home sold for a low price because the owners needed to move quickly. Or the home was in disrepair compared to others in the area.

Home valuation tools

Many companies and banks offer home valuation tools where you can enter the home’s address and answer a few questions about the condition and get an estimate of what the home may be worth. 

Real estate agents can use these tools to create another data point when calculating the value of a home. And while these tools aren’t the final word in home value, they can offer a piece of the larger puzzle.

What other factors impact home value calculations?

Schools

According to the National Association of Realtors, 23% of all buyers factor in the quality of the school district when making their neighborhood choice. A school district is typically considered “good” when it maintains high academic standards, offers a range of extracurriculars, has high attendance and graduation rates, and low student-teacher ratios.

Homes in desirable school districts are also subject to higher property taxes, but this is sometimes balanced out by other amenities that the neighborhood offers. Agents consider all of these factors when calculating home values. 

Location

“Location, location, location” is a common real estate refrain. With all things equal in a home—number of bedrooms and bathrooms, condition, amenities, style, etc—its location can have a large impact on the final value. 

And part of the location’s value is its proximity to amenities and services. Nearby parks, walking trails, recreation, entertainment, and views all factor into a home’s value differently and can dramatically impact the final calculation.

Waterfront access or water frontage, for instance, is highly coveted in real estate with some waterfront properties seeing values at almost 60% higher than comparable properties without waterfront. 

Think of what a buyer can change about your home vs. what they can’t

Some commercial attractions like grocery stores, coffee shops, and other businesses near your home can be good, but some can decrease home values. If you’re near a commercial area, new buildings may impact the noise level at your home. Or a new, larger road may increase traffic and therefore noise and also impact safety.

On the flip side, if the neighborhood is being updated and revitalized it may lead to higher home values in an up and coming area. Looking at the future of the neighborhood can also help you calculate home value.

CMA vs. Appraisal

An appraisal is a calculation of a home’s value conductedby a licensed appraiser. Appraisals are typically ordered by the lending institution and are used to determine the value of a home to protect the lender from lending more than what the home is worth.

The CMA attempts to determine the market value—what the home can sell for—but the appraisal amount also factors in. Your agent may use past appraisals as a factor in their home value calculation, or they may recommend paying for your own appraisal.

Real estate agents typically offer a CMA as part of their services and at no additional cost to you. When an appraisal is done, you pay for it regardless of whether your or the bank ordered it.

Appraisals can sometimes lag behind actual market value or exceed it if the market is changing rapidly. CMA data tries to use home sales within the last six months, so it may be better able to account for current trends. 

Setting the list price

At the end of the day, the real estate agent can make their best calculation of the home’s value, but the price that it will actually sell for depends on the current market and buyers’ desire to own the home.

An accurate calculation of home value can help set the list price and act as a good jumping off point for negotiations.


Stephanie Mickelson is a freelance writer based in Northwest Wisconsin who specializes in real estate, building materials, and design. When she’s not writing, she can be found juggling kids and coffee.

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