How to know how much your home Is worth: a guide

yellow concrete house

It seems simple, but your home is worth what someone is willing to pay for it. But how do you know that before you actually sell it? You need a reliable starting point. In this guide, we’ll take a look at the different ways to determine the value of a home, including comparative market analysis, previous sales prices, home appraisal, and tax assessment. We’ll walk you through each one to explain how it impacts your home value.

Key takeaways:

  • The value of your home is related to the market
  • Even if you’re not ready to sell, knowing the value of your home is important for other reasons
  • While there are multiple ways to determine the value of a home, the fair market value ultimately determines what it’s worth
  • Different valuations are used for different purposes
  • A professional real estate agent provides important expertise to help determine the most accurate value for your home 

While it would be amazing to look at a house and say that it’s worth a specific amount of money, the process isn’t nearly that easy. There are a number of different ways to look at the value of a home and different models to determine how much the home is worth. Tools like online automated valuation models (AVMs), a real estate agent’s comparative market analysis (CMA), and a professional appraisal all contribute to determining the value of a home—but what your home is actually worth comes down to what the market is willing to pay for it.

Consider this scenario: If you have a cookie and want to sell it, you’re going to consider how much you paid for it (we’ll say $2.00), who might want to buy it, what similar cookies sell for, and supply and demand. If you’re in a room of healthy eaters, and no one really wants the cookie, you might have to sell it for a discount. 

But if you’re in a room full of cookie monsters, they might even compete for the cookie by offering more money than what you’re asking. The offers may also change if there are five other people selling cookies or if you’re the only one. You know what you bought it for—and the cookie shop knows how much it cost to make it—but now that you’re selling it to a room of hungry people, the value is less concrete and more dependent on current circumstances.

So what does that look like in terms of how much your house is worth? Let’s take a look at why you should know your home value as well as some factors that contribute to the figure.

Why do I need to know how much my home is worth?

The answer to this question is pretty obvious if you’re selling your home. You need to know what it’s worth so you know how much to list it for, but also to plan for how much you expect to get before you buy your next home. 

If you’re not planning on selling, the value of your home contributes to your larger financial picture. If you’re calculating your net worth, you’ll account for your assets and debts. So, if your home is worth $500,000 and you owe $300,000, the equity ($200,000) will go in the asset column while the amount you owe would go into the debt column. And since equity is calculated as the difference between how much you still owe and how much the home is worth, you’ll need to know your home’s value to refinance as well.

Your home value also determines how you approach homeowner’s insurance. The replacement value of your home will determine the insurance you’d need to cover the home in the event that it is damaged or destroyed. Property taxes are calculated based on the assessed value of a home, as well. 

Ways to determine home value

Online automated valuation models

There are a number of websites that offer an automated valuation model, AVM.  To get an estimate of your home’s value, you’ll have to enter your address and, in some cases, answer a few questions about the condition of your home. The algorithm will then calculate an estimated value based on data and public records that are available for public use.

While this is a very handy tool to give you a quick estimate, think of this as just a starting point. It’s difficult for an AVM to take into account home upgrades or the neighborhood, for instance. But taken with the other ways to value a home, an AVM is a valuable tool to help you get the most accurate estimate of your home’s value as possible.

Information that AVMs use includes property records, sales history, owner details, information on the neighborhood, school ratings, and more. But these values aren’t always consistent. 

So you can see the comparison between different AVMs, take a look at this house in Seattle. It recently sold for $1,125,000. Here are a fews of the results when we entered the address in these AVMs:

This home in Seattle was estimated to be three different prices by three different online valuation models

Comps

To determine what your home is worth, your real estate agent will come prepared with comparisons (or comps)—local data on properties that are similar to yours in size, condition, and location. So if you’re selling your 3 bedroom 2 bath home that’s 1800 sq. ft. with major upgrades, your real estate agent should gather the selling price for other properties in the area that are as close as possible to this description. 

Comparative Market Analysis (CMA)

Your listing agent will gather a comparative market analysis, or CMA, to help determine the value of your home. This includes comps along with other data like their professional knowledge of the area, the current real estate market, and more to assess the value of your home as accurately as possible.

If you’re beginning to interview real estate agents, they will likely offer a CMA for free as part of the initial consultation.

Replacement cost value

To calculate the amount of insurance you need to replace your home in the event it is damaged or destroyed, insurance companies use the replacement cost value. This is a number based on what it would cost to rebuild the home using the current cost of building materials. It’s also possible to do some of the legwork yourself and contact different contractors to see what the current costs are to replace a roof, repair a foundation, and buy lumber and then multiply it by the square footage of your home. This estimate also accounts for things like plumbing and electrical systems, interior finishes, and ceilings.

The replacement value of a home can vary greatly from other values because it only considers the cost to replace the home and may use a depreciation model to account for wear and tear. It also doesn’t take into account things like land that a real estate appraisal would. 

Appraised value

An appraisal is an unbiased opinion of a home’s value that accounts for the property’s condition, the neighborhood, city, and state in which the property is located, the land on which the property sits, and surrounding properties. The appraisal itself is conducted by a licensed appraiser. It’s typically ordered by a mortgage lender and paid for by the buyer as part of the closing process. 

If your home has been appraised recently, you can use that data to help you get an accurate home value, but it will still be appraised when someone applies for a mortgage. Appraisals are typically valid for 120 days (approximately 4 months). Some appraisals, like Fannie Mae or Freddie Mac appraisals, are valid for 12 months but require an update after the initial 120 days.

If you don’t want to wait for the lender to order an appraisal, you can have one done at any time for a few hundred dollars. This will give you the best estimate of your home’s objective worth and what you could sell it for, but it isn’t the final word. Depending on the market, you could be offered more or less.

Assessed value

Municipalities use the assessed value of your home to determine your property tax rate. This is usually a percent of the appraised value, so while it might not be the price that you list your home for, it will give you another data point with which you can gain the best understanding of what your home is worth.

Fair market value

You can determine the fair market value of your home when you combine the previous tools and then subject the model to the current real estate market. It is essentially an estimate of what your home would sell for if it were to sell at that moment on the open market, based on the estimations of the previous tools. Fair market value, however, can change depending on certain circumstances. 

For instance, in May of 2021, 19% of purchase transactions were above the appraised value of the home—up from just 7% in January of 2020. In the case of the last few years, real estate was a seller’s market, which occurs when there are fewer homes on the market than there are buyers who want to purchase a home. 

In a buyer’s market, where supply exceeds demand, it’s possible that the fair market value could be less than the appraised value because buyer’s aren’t willing to pay the appraised price or higher as in a seller’s market. In 2010, for instance, homes were selling for a median of 4.6% less than the listing price (which may have been more or less than the appraised price).

Home values change over time

If we go back to our Seattle home example from above, we can see how its fair market value changed over time by looking at what it sold for in recent years. In February of 2022, it sold for $1,125,000 ($625/sq. ft.). Four years ago, in November of 2018, it sold for $758,000 ($421/sq. ft). 

Its tax assessment changed as well. In 2018 its tax assessment was $620,000, in 2019 it was $725,000, and in 2020 it was $695,000.

Nearby comparable homes sold for $900,000, $1,185,000, $765,000, and $1,123,000 in recent months.

While real estate values trend upwards over time, there are bound to be peaks and dips depending on a number of factors, including the current economy and supply and demand, and the value of your home will change in connection with these factors.

Ok, so how do I know how much my home is worth?

There is no one size fits all answer to this question, but understanding which tools to use to evaluate your home’s value along with analyzing current market conditions and working with a professional real estate agent will help you determine the most accurate value.

FAQs

Where can I find an automated valuation model (AVM)?

There are lots of AVMs to choose from, with Zillow’s Zestimate being the one that most people are probably familiar with. Other sites that include an AVM include Realtor.com, Redfin, and more. Some real estate websites, like RE/MAX, also embed a home value calculator in their site as well.

How accurate are automated valuation models?

The accuracy of an AVM is ultimately dependent on the final sale price of a home and the actual appraisal. AVM generated values can be used in conjunction with a real estate agent’s CMA and an appraiser’s value to get a good idea of the actual value of a home.

Is the assessed value the same as the fair market value?

Typically, no. The assessed value is the amount that you’ll pay property taxes on and is often calculated as a percentage of the fair market value.

When was the last buyer’s market?

After the real estate market crashed in 2008, foreclosures skyrocketed and many other people who couldn’t make their payments tried to sell their homes quickly. This opened the door for buyer’s to take advantage of increased supply and leverage it for lower purchase prices and other benefits like seller repairs.

About the author: 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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