Millions of you want to know the answer to one seemingly simple question: How much is my home worth?
Sadly, in many cases, the only simple answer is “much less than you paid for it.” (Go ahead, you can share your story in the comments. This should get ugly quick.)
But just how much have tumbling housing prices affected the value of your home? Or, if you don’t yet won a home—how can you tell if that house you’re eyeing is fairly priced?
I asked Sarah, an experienced real estate agent, to give us a crash course in how to estimate the value of your home, just like she and other agents do.
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How much is your home worth? If you want the honest answer: it’s worth whatever somebody will buy it for. How do you know how much somebody will pay? You have to figure out how much value they see in it.
Value, of course, is subjective. And that’s why real estate agents and banks spend so much time studying properties to ensure the price is right. So when you’re serious about knowing what your home is worth, you can and should use the same method the professionals do…a comparative market analysis (CMA).
A CMA is a common way real estate agents determine a home’s value through comparing it to similar properties in the area—without ever stepping foot inside the house. This involves logging into the Multiple Listing Service and searching for at least three active, three pending and three sold properties in the same area with similar characteristics as the subject property. (These are often called “comps” because they’re comparable to your property.) The average of the sold properties is taken to arrive at an average market value for the subject property.
ESTIMATING YOUR HOME’S VALUE USING COMPS
You may not be a professional appraiser, but, realistically, you appraise things every day. For example, the last time you listed something for sale, you made a guess at what someone might pay for that item. You can do the same with a home. (Just don’t expect a bank to write out a loan for whatever you tell them your house is worth—they’re still going to pull a professional appraisal.)
Pull your own comps by looking up recent sales of area home sales with like number of bedrooms and bathrooms and similar square footage. You can get this info at your city hall or on sites like Realtor.com, but keep in mind free Web sites may not be updated or 100% accurate. The best comps are properties sold in the last month, although 90 days will do. Take the average of the sold properties you find, and then add to the value for any upgrades to your home (new kitchen, pool) and subtract for downgrades (no garage, small yard).
SEEKING PROFESSIONAL OPINIONS
If you need more than just a guess as to how much your home is worth, you can enlist a professional—either an appraiser or a real estate broker—to help you.
An appraisal is a professional estimate of value, most of which involve the appraiser visiting the property in addition to analyzing data like use restrictions and area market sales trends. According to the Appraisal Institute: “A written appraisal report generally consists of: a description of the property and its locale; an analysis of the ‘highest and best use’ of the property; an analysis of sales of comparable properties ‘as near the subject property as possible’; and information regarding current real estate activity and/or market area trends.” If you need an appraiser, the Institute offers a directory helpful for finding appraisers.
Similar to an appraisal, a broker’s price opinion (BPO) is an estimate of value done by a real estate broker. Unlike appraisals which can cost hundreds of dollars, many realtors will give you a BPO at no charge if they anticipate winning your business on a future sale.
Whatever you conclude about how much your home is worth, remember that the market will always correct you. Even the best estimate of home value—whether a professional appraisal or a do-it-yourself comp analysis—doesn’t replace the only way to value a home…and that’s to find out what somebody is willing to pay for it.
Is your home worth a lot more or less than you paid for it? Have you ever been surprised to learn the actual value of a property was different than what you guessed? Let us know in a comment.