What Is Home Value And How Do You Determine It?

What Is Home Value?

Your home value, or its current market value, is most commonly defined as the price another buyer is willing to pay to purchase your home. Home values can fluctuate based on factors both within and out of your control. For example, home improvements might increase your current home value, but higher mortgage rates could also make potential buyers unwilling or unable to pay as much for your home as you’re asking for it.

Understanding the value of your home can help you determine your asking price when you list it on the market. This information can also affect how much you’ll pay in property taxes and how much you’re able to borrow from a lender.   

Types Of Home Value Estimates

There are multiple methods of calculating home value, and each method considers different factors. Common home value estimates include:

• Market value: Market value is the amount potential buyers are willing to pay for your home.
• Fair market value (FMV): Fair market value is similar to market value but assumes that both buyer and seller are knowledgeable about the market and are free of outside pressures or influences.
• Appraised value: Lenders typically require this valuation to make sure they’re not lending more money than a house is worth. A professional appraiser performs an appraisal through – at least in most cases – an in-person evaluation of a home’s condition and features.
• Assessed value: Assessed value is used to determine how much you’ll pay in property taxes. This number is decided by a professional assessor.

How Can You Determine The Value Of Your Home?

Before you can buy, sell, refinance or get a second mortgage, you need to know the estimated value of your home – which you can find utilizing any one of four strategies.

1. Use Online Home Valuation Tools

One of the easiest ways to estimate the value of your home is by using an online home valuation tool. Many companies, including Rocket Homes^SM, typically offer these tools and rely on recent sales in your area to determine your home’s value.

By using a home value estimator, you’ll receive an immediate estimate. However, different websites will use different metrics to evaluate your home, and some are more reliable than others. So, if you choose this method, it’s essential to use trustworthy sites.

2. Hire A Professional Appraiser

A professional home appraisal is the safest, surest way. Lenders will typically rely on a third-party home appraiser before approving a mortgage, but it’s the buyer’s job – not the seller’s – to pay for it. However, it’s a good idea for homeowners to get their own appraisal ahead of time if they’re preparing to sell their home.

During the appointment, an appraiser reviews several factors to determine the house value estimate. They’ll look at the current condition of your home, your neighborhood, the market conditions and comparably priced houses to assess your home’s value. For this reason, it’s much more accurate than just getting an online home value estimate.

3. Consult An Agent For A Comparative Market Analysis (CMA)

Another good option is to have a real estate agent (who might also be a REALTOR^®) help you determine the value of your home. A real estate agent will look at the current housing market and use a comparative market analysis to assess your home’s valuation.

A real estate agent’s assessment of your home’s value will be less detailed than a professional appraiser’s, but it’s still a good option. Real estate agents can make recommendations – such as ways to improve the aesthetic of your house – in order to increase the value of your home.

4. Pull ‘Comps’ On Similar Properties

Real estate comps are comparable homes in the area where you’re looking to sell. If you check online sites, you can find information on nearby properties that sold recently. Not only will you see the price listed, but you’ll see how those homes compare to yours.

The advantage of using this strategy is that it’s free and easy and can help you determine what to list your home for. It can also help you identify specific features in your house that home buyers are looking for. However, this strategy is less reliable than hiring an appraiser.

Why Is It Important To Know My Home’s Current Value?

Understanding your home’s value is important for a few reasons. Some of the more common situations where it’s crucial to know the value of your home include:

• Selling your house: Knowing your house value can help you determine the best price to list the property. Your home’s value can also assist in deciding between different home offers and, ultimately, on a final sales price.
• Taking out a home equity loan or a HELOC: You’ll need to know your home’s value for a home equity loan or a home equity line of credit (HELOC) – both a type of second mortgage – because you’re borrowing against the equity in your home. Your home value can be used in calculating your estimated line of credit for a HELOC, where you multiply your home value by your loan-to-value (LTV) ratio to get the maximum amount of borrowable equity. From this, you’ll need to subtract the amount you still owe on your primary mortgage, however.
• Refinancing your home loan: Your home value can also be a valuable indicator when refinancing your mortgage. If you’re opting for a cash-out refinance, for instance, your home value plays an important role in how much money you can take out.
• Assessing your property taxes: The amount you pay in property taxes is determined by the assessed value of your house and is performed by a professional assessor. Understanding the tax-assessed value of your property can help you appeal your property taxes if you believe they’re too high.

How To Increase How Much Your House Is Worth

If you’re looking to increase your home’s value, a number of improvement projects are worth considering. Not all home improvements add value, especially ones that are more custom or extremely expensive. However, certain home upgrades can fetch you a higher price for your home and improve your quality of life.

Examples of home improvements that can boost a house’s value include:

• Bathroom additions or upgrades
• Garage door replacement
• Curb appeal enhancement
• New windows
• Energy-efficient upgrades

If you’re saving up for renovations, know that your property may appreciate in value without them. For example, if market conditions bring housing prices up or the area you live in increases in popularity, your home can increase in value. 

The Bottom Line: It’s Wise To Keep Track Of Your Home Value

Before you can sell your house, you need to know how much your house is worth. Being aware of your home’s value will help you determine an accurate listing price and, hopefully, help your home sell much faster.

You can determine home value by using a home value estimator, hiring an appraiser, working with a real estate agent or checking real estate comps in your area. Using an online valuation tool or pulling comps in your neighborhood is easy and quick, but you’ll receive more accurate results by hiring a professional appraiser.

Are you looking to increase your home value before selling the property? Consider a cash-out refinance to fund any necessary home renovations. Start your application today with Rocket Mortgage^®.