The housing market is showing promise as people look to rebuild and re-establish themselves after the adverse effects of this global pandemic. The specific reasons people are turning to the housing market are unique to our current circumstances, but the basics of home buying, selling, or refinancing remain the same.
One of those extremely important basics to ensure a seamless home buying or selling experience is determining home value.
It’s important for buyers and sellers to be knowledgeable in the process of determining home value and what goes into making an accurate valuation.
The value of your home influences the entire buying or selling experience because it determines your mortgage loan amount, how you approach offers, and/or on what terms and price range you can sell.
What can you do to make sure your home receives an accurate value? In this article, we’ll discuss 9 tips for determining home value that are important for the seller to know as well as tips that are geared toward what information a buyer should take into their process with them.
9 Tips For Determining Home Value
Once you’ve decided to sell your home or buy a new one, it’s important to get an accurate, definitive determination of the value of your home. Whether you’re trying to ensure you accept or get a proper offer as a seller, or you want to ensure you don’t overpay on a house as a buyer, there are specific actions you can take to get the most accurate valuation.
Here are 9 tips buyers and sellers can use to determine the value of their homes:
Research what other houses are selling for in your neighborhood
Review recently sold or listed homes in your area to get the ball rolling in determining the value of your home. You’ll want to be familiar with all real estate comps in your area, which are homes recently sold in your area that are similar in size, location, features, and condition to your home.
This ensures you’re listing your home at a fair price or ensures you don’t overpay on a home you’re buying.
Whether you’re buying or selling, knowing what other houses are going for in your area gives you a base for determining your home’s value.
Look for homes with similar square footage, features, and amenities to your home. You’ll then want to look at what these homes sold for or what they’re currently listed at, as well as how many days they’ve been on the market to get an idea of how long it may take to close a deal.
Know what adds value to a home and what removes value from a home
Whether you’re selling or buying, it’s crucial to know what adds value to a home and what removes value to make a realistic determination about the value of your home.
Having key knowledge about both subjects also helps you pinpoint specific updates you can make that can improve your chances of getting the offer you want or your ability to make the proper offer on a home.
Things that add value to a home include:
- New bathroom fixtures
- Modern upgrades
Things that remove value from a home include:
- Proximity to train tracks
- Unusual upgrades
- Numerous foreclosures
As you go through your home or visit a potential one, identify features that add value to the home and be realistic about features that aren’t, and leverage this information to determine an accurate value.
Be mindful of repairs or replacements that need to be done as well as ongoing maintenance
Repairs that need to be done, priority replacements, and ongoing maintenance all factor into the value of a home. Signs of neglect like broken windows, damaged floors, chipped paint, loose wires, or faulty electrical systems all contribute to a low home valuation.
Considerable signs of disrepair can be a nightmare for buyers and sellers.
Sellers should look to repair and replace anything that has a significant impact on the habitability of the home if they want to get the best offer they can. Buyers should also consider these same signs of disrepair and leverage them to either make an offer that reflects how much work needs to be done or walk away from the opportunity altogether.
Buyers should also consider the ongoing maintenance of a home to ensure they can afford the upkeep and that it’s reflected in the home value.
Get an appraisal done by a licensed professional
An appraisal is when a licensed appraiser does a thorough in-home inspection using several criteria to analyze and ultimately determine the value of a home. This is the most common way to determine home value. Home appraisals cost between $300-$450 on average.
You’ll be required to get an appraisal if you’re using a mortgage lender or refinancing your home. Buyers are usually responsible for the cost of a home appraisal, or if you’re refinancing your home.
Sellers will also want to consider getting an appraisal done by a professional to ensure they’re only entertaining offers that reflect the value of their home.
Appraisers look at:
- The overall condition of a home
- Necessary improvements
- The interior and exterior of a home
- Safety features
Whether you’re buying or selling, you can count on an appraisal report to give a full analysis of the condition, function, look, location, safety, and habitability of a home that accurately and efficiently determines its value.
Consider your home’s location
Location is so important to a home’s value because a home’s land will only increase in value if the area around it improves.
Things like how close a home is to stores, public transportation, noisy freeways, and railroad tracks are mattering more to buyers. Sellers should also consider views, walkability, and whether the house is located on a busy street or dead-end when determining the value of their home.
Use credible online tools
The internet gives us access to a variety of resources and tools that aid us in our home buying and selling experience. These tools include calculators that help you determine the value of your home. One of the simplest of these calculators is the Federal Housing Finance Agency’s HPI calculator.
Input when the home was purchased and the price, and it tells you an approximate worth based on today’s housing market. These calculators won’t ever replace the human elements that go into calculating the worth of a home, but they do give you a quick answer, to begin with.
Do an inventory of the housing market in your area
Are people buying in your area? If so, what’s the demand for housing in your area, and is there a supply for that demand? The value of a home is often determined based on the availability of homes in your area and the kinds of homes that are already in your area.
A home may be valued at a certain point, not because of its exterior or interior, modern updates, or tip-top condition, but simply because the houses around it are valued at a certain amount and there are more buyers than sellers.
A seller may not be required to do all of the updates or repairs and instead can lean on how unavailable or available houses are in the area and if people are desiring to move into your area.
Buyers should beware of any infestation issues or other hidden health hazards like mold, asbestos, or carbon monoxide that could impact the value of the home. If these issues have yet to be addressed and/or have no plans to be fixed, buyers should absolutely ensure these issues are brought to the table when determining the value of any home.
Sellers will want to be aware of these same challenges and do their best to fix as many of these issues as they can before moving forward with the sale of their home. This will benefit the valuation of your home and positively impact your selling price.
It will also ensure your home is meeting the required safety standards and exceeding health expectations.
Determine how you will be using your home
People use their homes for different purposes. The most familiar is to live in, rent out, or use for another profitable purpose like an Airbnb or office space.
Knowing exactly what you will be using your home for and being forthcoming about this when getting your house valued can help determine the most accurate valuation.
An income approach to value attributes your home’s value to the future income it will generate as a rental property. A Cost approach to value will attribute your home’s value to the land it sits on and the cost of materials for home improvement purposes.
The value of a home is determined by:
- The amenities of the home
- Location and surrounding neighborhood
- Recent sales of similar houses
- Current market trends
- Interior & exterior of the house
- Needed repairs or replacements
- The functionality of the home
You’ll want to make sure you have as much knowledge as you can about determining home value because you want to get an accurate figure, up-to-date, and reflective of the overall function and condition of your home. There are many home value estimators available online that can aid in this process and be useful for determining value.
A seller should take this information into their selling process to have key points to consider before accepting any offer on their home and ensure they’re accepting the most accurate and fair offer on their home. A buyer should take this information into their buying process for the best chance at paying a fair price for their next home and ensuring it’s worth the investment.