The value of your home is an important number. It determines what loan programs you may qualify for and how much equity you have in your home once you own it. It’s not what you think it is worth or what someone offers to pay you for it. Instead, it’s the amount that an available and willing buyer would pay for the home.
Look at Comparables
The first thing you’ll need to do is look at comparable sales in the area. Generally, you want to use sales that occurred within the last 6 months. Using the sales price of these homes gives you a good basis to figure out your home’s worth.
When you look for comparables, you want homes that are just like your home. Of course, it’s nearly impossible to find three of the same exact model home in the same condition. However, the closer you can get the better. For example, if your home is a ranch model, you wouldn’t compare it to a two-story home. As close as you can get the features of the home, the closer your home valuation will be to the right number.
When you find comparables that are similar, but not quite identical, the appraiser will make adjustments to the value. For example, if the comparable home is 5 years newer than your home, your home would be worth slightly less than the comparable. On the opposite end, though, if your home is newer than the comparable, your home would be worth slightly more than the amount the older comparable sold for.
Determine the Differences
As we discussed above, you need to figure out what is different about the comparable homes chosen. While they should be as close as possible to the size and structure of your home, there are going to be differences. Consider the following:
- Lot size
- Type of roof
- Curb appeal
- Living space
Any differences between the homes should be noted, as they will be an adjustment to the value. If the comparable home has more square footage or an upgraded kitchen, it would be worth more than your home. You would subtract from the comparable sales price to arrive at the estimated worth of your home. If, however, it’s your home that has the upgrades or more square footage, you would increase the sales price of the comparable homes to arrive at your home’s value.
Use an Online Estimator
Generally, you’ll use an appraiser to determine the value of your home. Your real estate agent can give you a good ballpark figure as well. But, if you are just in the planning stages and want to know approximately how much your home is worth, you can use one of the following online home valuation tools.
With just a street address, city, and state, you can determine a good estimate of what your home is worth.
Using Your Home’s Value
Once you know how much your home is worth, you can figure out how to proceed.
If you are selling your home, you have a good number to use for the sales price. This doesn’t mean it’s the amount you will get, but it’s a fair value to ask. You can then negotiate with potential buyers to get an amount that is close to what you asked. Knowing how much your home is worth ahead of time can prevent any issues with the buyer’s financing down the road. If you ask more than the home is worth, it could put you in a bind.
If you are staying in your home, but want to refinance, you’ll need the value then too. It will help you determine your loan-to-value ratio and how much you can borrow. Whether you are trying to refinance your first mortgage or you need a home equity line of credit, you’ll need to know how much your home is worth. Most lenders will only let you borrow up to 80% of what a home is worth for a cash-out refinance or home equity loan. So you’ll need to know what it’s worth in order to proceed.
The value of your home is an important number no matter what your plans are for it in the future. It can help you decide which renovations, if any to make. It can also help you decide if you should sell the home or keep it and wait for it to appreciate.