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Whether you plan to sell your home, refinance your mortgage, borrow from your home equity or just want to estimate your net worth, it’s important to understand how much your home is worth.
But figuring out your home value isn’t a simple task. You’ve probably picked up your tax bill and thought the assessment was too low. Or maybe you’ve used an online calculator to guess what you could get for your home if you sold it and found the range too broad.
While tax assessors, real estate agents, appraisers and automated home value estimators are all available options, each has a different role and will likely have a different idea of what your home is worth.
“My best advice is to consider the goal you are trying to accomplish and then hire the person who is best suited to provide that information,” says Lauren Kolazas, a real estate agent with RLAH Real Estate in Arlington, Virginia. “If you want to know what your home will sell for, then you should definitely be speaking with a seasoned Realtor who is familiar with the area where you live.”
Fair market value vs. appraised value
The fair market value of a home is typically defined as the price a buyer will pay for a seller’s home. In theory, the fair market value and the appraised value of a home should be the same, says Joe Buffington, broker/owner of Re/Max Realty Center in Olney, Maryland.
“However, in a rapidly moving market, either up or down, the appraised value can lag behind the market,” Buffington says. “Appraised value tends to lean heavily on what has sold in the area, which could have been an active listing one to six months earlier. Real estate agents tend to look at where the market is heading to help our clients decide on the correct price for their home.”
An appraised value depends on the evaluation of a professional appraiser, usually hired by a lender for a refinance or a purchase mortgage loan.
Tax assessments and home value disparities
A tax assessment is done by a city, town or county to determine your home’s value for property taxes. The frequency of tax assessments varies. For example, in Washington, D.C., assessments are done annually but in Maryland assessments only take place every three years. In Virginia, homes are assessed every two to four years. In King County, Washington, residential property is assessed yearly.
“Sometimes the tax assessor’s value is higher than market value, while in other cases the assessor’s value is lower than market value,” says Rodman Schley, founder and CEO of Commercial Valuation Consultants (now BBG) in Denver and president of the Appraisal Institute, a professional organization of real estate appraisers. “In most situations, the tax assessment process uses a value model to produce what’s called a “mass appraisal” for many properties, which is different from an individual appraisal that focuses only on a particular property.”
Since tax assessments typically don’t include inspections of a home the way an appraisal does, they’re more likely to be based on flawed information such as the incorrect square footage or number of bedrooms and bathrooms, says Schley. They also won’t include any interior upgrades you may have made, points out Kolazas.
Automated home value estimates
Many online real estate sites offer estimates of your home’s value, but their accuracy is debatable.
“Home value tools are similar to WebMD,” Buffington says. “WebMD gives you a range of information, but I wouldn’t get surgery based solely on this information. It’s important to always consult with a professional after gathering some information online.”
Buffington reviews Zillow’s Zestimates and the National Association of Realtors’ Realtors Property Resource tools as a starting point for home value analysis.
“I realize that consumers look at Zillow for pricing advice, so looking at it helps me understand the consumer’s point of view,” Buffington says. “There’s a lot of data out there, and it’s my goal to harness the best resources to give my clients the best advice.”
Kolazas says online home value estimating tools are similar to online mortgage estimating tools.
“They may give you some initial information or a data point to begin with, but they’re missing too much information to be accurate,” Kolazas says. “An online tool can’t see your curb appeal or your brand-new kitchen, just like a mortgage calculator doesn’t know your credit score.”
Hiring a real estate agent or an appraiser
If you’re buying a home, your lender will hire an appraiser. If you’re refinancing your mortgage, your lender may either hire an appraiser or in some cases use an automated valuation model, which Schley says rely on public records and multiple listing service data.
If you want to know your home value for your own purposes, you can ask a real estate agent to estimate your home value at any time. You’ll get a detailed comparative market analysis if you’re thinking of selling the property.
“I always explain to clients that a comparative market analysis has a short shelf life, especially in this market,” Buffington says. “Once a new listing comes on the market, a home goes under contract, a seller reduces their list price or withdraws their home from the market, or a home goes to settlement, the list price of any comparable home could change for better or worse.”
Kolazas says looking at the numbers is the most important step in deciding whether to sell.
“We first look at what your home is likely to sell for, including the low end, the most likely price and the high end,” Kolazas says.
Estimated sales costs and the remaining mortgage balance are subtracted from the sales price to determine your net proceeds.
You can also hire an appraiser for information about your home value.
“Typically, appraisals are initiated by a lender as part of a potential home purchase, sale or refinance,” Schley says. “Many consumers directly hire an appraiser for a home valuation or information, but federal lending requirements prohibit borrower-ordered appraisals for mortgage purposes.”
Kolazas estimates that an appraisal costs $600 to $800, but she says a real estate agent will provide better market information.
“For instance, will the online rankings of a local elementary school pull your property value up or down? An appraiser typically doesn’t look at that kind of information,” she says.
If a homeowner opts to have an appraisal done before they list their house, Buffington says, he’ll use that information to help justify the list price to buyers.