Tips To Help Figure Out How Much Your Home Is Worth
As a homeowner, regardless if you’re thinking of selling your home or not, you should always be concerned about the market value of your home. Certainly when you’re thinking about selling your home you will be more interested in how much your home is worth than if you’re not thinking about selling.
Over the past 5 years as one of the top Realtors in Rochester NY, I’ve been approached by many homeowners who are wondering how they can determine the market value of their home. There are several methods of determining market value of homes that should be avoided like a disease and others that are great for determining the market value of a home.
In this article you will find out what market value is in real estate, what methods to avoid when determining market value, and what methods are best to determine how much your home is worth. Read on to find out how to determine the market value of a home.
What Is Market Value In Real Estate?
One of the biggest misconceptions in real estate relates to the different kinds of values for real estate. There are several kinds of “values” in real estate. Three of the most common values are a homes market value, a homes appraised value, and a homes assessed value. These three different kinds of real estate values are frequently confused as being the same, which is a big mistake because they are actually much different.
Market value can be easily described as the price a home would sell for on the open real estate market. There are many factors that impact a homes value and methods that can be used when determining the fair market value of a home.
What Are The Worst Methods To Determine The Market Value Of A Home?
There are several methods that are used to determine how much a home is worth that are really poor options. Read on to find out what the worst methods are for determining the market value of a home.
Price Per Square Foot Method
There are many homeowners and real estate professionals who believe the price per square foot method is a great way to determine a homes market value. By simply taking the sale price of a home that is similar to a home and dividing it by the number of square feet in the home and BOOM, that must be the value of the home, right? WRONG – using the price per square foot method can be used as a measure to understand the general values of an area but should never be used to determine the market value of a home.
The price per square foot method is commonly used by real estate agents who aren’t familiar with an area or who aren’t skilled at pricing a home. The reason why the price per square foot method is a poor method to determine market value is because every home is different. While homes are similar in terms of square footage, number of bedrooms, number of bathrooms, and location, there are so many factors that aren’t taken into consideration when using the price per square foot valuation method.
While selling a home in Brighton, NY recently, there were several three bedroom colonials that had recently sold in the area for around $100.00 per square foot. The home that I sold had tons of upgrades including granite counters, mosaic tile floors in the kitchen and baths, and many other updates that some of the other recent sales in the area did not. If the homeowner was to use the price per square foot method they would have been costing themselves around $20,000 since the home ended up selling for $120.000 per square foot.
This is only one example of the price per square foot valuation method being a poor choice for determining the market value of a home.
Online Market Value Estimates
There are many homeowners who believe that everything they read online must be true. If I were to receive a dollar every time I heard a homeowner say, “But why did Zillow say my home is worth more,” I’d have a nice amount of extra money laying around. One of the worst methods to determine the market value of a home is using online market value estimators.
There are several websites that offer market value estimations. Some of the most popular websites that homeowners visit to find out the value of their home include Zillow and Trulia. Did you know that some of Zillow’s Zestimates can be off by $30,000+? Yes, you read that correctly, $30,000!
If you think about it for a moment, how can a website that is not located in your local area and that has never been inside your home determine the market value of your home. It’s impossible for a homes market value to be accurate since these online websites have no clue what is currently happening in your local real estate market or what the condition of your home is.
There is consistently buzz going around as to whether Zillow’s home value “Zestimates” are accurate or not. It’s important that if you’re looking to find out what the market value of your home is to avoid going online to find out.
AVM’s – Automated Valuation Models
Automated valuation models, also known as AVM’s, is a service that can provide a real estate property valuation using mathematical modeling combined with a database. AVM’s can be produced in a matter of seconds and uses public record data and computer logic to calculate an estimated sale price of a property.
It sounds like AVM’s would be a great way to determine the market value of a home because it uses statistics and lots of data but the reality is that they are a terrible method to determine how much a home is worth. Similar to the price per square foot method, AVM’s don’t take into account property features, upgrades, and amenities.
Another drawback of using AVM’s to determine the market value of a home is the fact that the data can be delayed at times. If a database is not updated for a few months the reality is that a lot can change in that time period, such as more homes being sold.
What Are The Best Methods To Determine The Market Value Of A Home?
Accurately determining the market value of a home is something that simply cannot be done by a computer or third party real estate website. There are certain methods that should be used when determining the market value of a home. Below are a couple of the best methods to determine the value of a home.
Comparative Market Analysis
One of the top ways to determine the value of your home is by having a comparative market analysis performed on your home. A comparative market analysis, frequently referred to as a CMA, is a detailed analysis performed by a real estate professional that analyzes recently sold homes (“comparables”) within the past 6-12 month period in a specified area.
It’s important to understand that every real estate agents CMA will be different but there are certain things that you should expect to find in a quality comparative market analysis. Before you have a real estate professional complete a CMA on your home, it’s important you make sure they are an experienced and successful agent. To do so, it’s important you know how to interview Realtors®.
Once you’ve found a couple top Realtors® in your local area, there are certain things to be on the look out for in their detailed CMA. Below are some of the most important aspects to an accurate and quality CMA.
- Comparable properties have similar square footage
- Comparable properties are the same style of residence
- Comparable properties have similar number of bedrooms and baths
- Comparable properties are located in the same area as your home
- Comparable properties have similar upgrades and updates
These are all factors that influence the sale price of a home. It makes absolutely no sense if a CMA includes a home that is in a town that is 10 miles from your home. The real estate market in your town is not the same as a town that is that far away. It’s also important that the comparable properties that are used have similar conditions, upgrades, and features but if they do not, an adjustment must be made on the market value of your home.
A quality CMA should be presented in a professional, clean, and organized fashion that should make determining the market value of your home easy. If a CMA is completed properly, most homeowners will understand and agree with the market value a top Realtor® suggests.
Another popular and accurate method to determine the market value of a home is to purchase an appraisal on your home. An appraisal is a written estimate of a properties value that is completed by an appraiser. The cost of an appraisal typically ranges between $250 – $500 but is a great way to get an unbiased opinion of a homes market value.
There are a couple different appraisal methods that an appraiser can use to determine a homes value. Below are brief overviews of two different approaches used by an appraiser.
- Cost Approach – The cost approach is an estimate of what it would cost to replace or reproduce the improvements in a home that will deduct issues such as deterioration of a property. The cost to replace or reproduce a home is added to the value of the land to complete the appraised value.
- Comparison Approach – The comparison approach is the same as a comparative market analysis completed by a real estate professional. An appraiser will look at properties that have similar size, quality, and location that have been recently sold. Variations between properties are factored by either adding or subtracting value to the value.
Having an appraisal is another great way to determine the market value of a home for a couple different reasons. The most important reason is due to the fact that any buyer who is obtaining a mortgage will be required to pay for an appraisal by the lender. This is mainly because the lender wants to make sure the buyer is not overpaying for a home. A home not appraising for the sale price is only one of the common issues resulting from bank appraisals.
As you can see, there are many different ways to determine the market value of a home. Some of the methods are really poor choices for the many reasons listed above. If you’re wondering how much your home is worth, it’s very important that you do not fall for the poor methods of determining market values.
Determining the market value of a home is not as simple as a computer spitting out a number. Both a CMA and an appraisal take time and effort to complete properly!
Other Resources Relating To Home Valuation Methods & Pricing
- How Does A Realtor Determine Real Estate Values via Manausa Real Estate
- How To Determine A List Price via Frederick Real Estate Online
- Pricing A Home For Sale via Bundlr
Are you wondering, “how much is my Rochester, NY home worth?” It’s extremely important that you do not fall for one of the poor methods of determining market values listed above. If you need a top real estate agent in the Greater Rochester NY area to help you find out what the market value of your home is, contact me, and I’d love to complete a detailed CMA of your home at no cost!
About the authors: The above article “How To Determine The Market Value Of A Home” was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise.
We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.
© 2016, Kyle Hiscock. All rights reserved.