Understanding a home’s true market value is about more than
pictures, software assessments and price-per-square-foot. Whether you’re a
current homeowner thinking of selling or are house-hunting, it’s crucial you
understand what factors affect home valuation. By partnering with a local
market expert, sellers will avoid pricing their house out of the market (the
kiss of death in real estate) and buyers will ensure they get a good deal on
their next home.
So, how do you accurately calculate a home’s value? After
all, the value a home is assigned by its town or county and the one it’s given
when it’s listed are often dramatically different from one another. Which one
is accurate and what does it all mean? Read on to learn more.
Assessed Value vs
Market Value: What’s the difference?
When it comes to home value, you’ll often hear two terms, assessed value and market value.
A home’s assessed
value is often the lower number of the two, and is the value given by your
municipality or county. Investopedia defines assessed value as “the dollar value assigned
to a property to measure applicable taxes.”1 Although property tax
laws vary, assessors commonly arrive at this number by taking into account the
comparable/similar homes are selling for in your area.
value of recent improvements.
from renting out a room or space on the property.
much it would cost to rebuild on the property.
A home’s market value,
or Fair Market Value, is the price a buyer is willing to pay or a seller is
willing to accept for a property. A skilled real estate professional will
arrive at the value using a variety of metrics, including:
characteristics, such as lot size, home style, the condition of the home and
characteristics, such as the number of rooms and their size, the type and
condition of the heating or HVAC system, the quality and condition of
construction, the flow of the home, etc.
sales price of comparable homes that have sold in your area.
and demand; that is, how many buyers and sellers are in the area.
that is, the quality and desirability of your neighborhood and other community
You’ve likely heard the motto of real estate: “Location,
location, location.” This means a home’s value relies on its location. While
the home and structures on the property will likely depreciate over time, the
land beneath it tends to appreciate. Why? Land is in limited supply and a
growing population puts increased demand on the housing supply. As a result, values increase.4
Other factors that affect your home’s value include the
function and appearance of the property, how well the home and other structures
are maintained and whether the home is a lifestyle property, such as a ranch
style with mountain views or beach bungalow.
Ultimately, the best indication of a home’s value is the
overall supply and demand of the market. This is why we recommend you partner
with a real estate professional who takes all of these factors—the assessed
value, local market conditions, home features and has physically walked through
and experienced your home— into consideration to determine the most accurate market value.
How to determine if a
property is comparable to yours.
Both assessed value and market value are partially
determined by the sales price of similar, or comparable, homes in the area. To
determine if a home is comparable to yours, look for the following
style or similar architecture
While you may not find a home with the same exact
characteristics as yours, you’ll likely find a few that are close. To account
for any disparity, adjust the sales prices of the comparable properties. Look
at the differences between your property and the one in question and determine
if the differences increased or decreased the sales price and by how much. For
example, if your home has two bathrooms and a similar home only has three,
estimate how much that extra bathroom increased the sale price of the similar
home. Theadjusted sale price is the estimation of what
the property would sell for if the properties were exactly the same.2