How to Determine Your Home’s Value When Selling

How to Determine Your Home’s Value When Selling

What Is Fair Market Value?

Anyone who has ever tried to purchase or sell a home will be familiar with the significance of a property’s fair market value, or FMV. FMV is the price that a property would sell for on the open market under usual conditions. Thus, the FMV is significant to those who own a property, as well as those who must pay taxes on that property. Taking a property-based deduction requires determining the FMV. The term is also widely used in the real estate investment market.

Unfortunately, there is no easy or universal way to determine market value for real estate. However, nearly every market valuation comes down to two factors: real estate appraisals and recent comparable sales.

Key Takeaways The fair market value is the price a home would sell for on the open market under normal conditions.Fair market value (FMV) is often different than actual market value or the appraised value and is used in some property tax evaluations.Guidelines on how to fairly evaluate a property's value are spelled out by the IRS.

What Appraisers are Looking at

Appraisers will focus on the condition of the important parts of the home like the age, square footage, number of bedrooms and baths, the size of the lot, as well as the location of the home. Appraisers will also take a look at the furnace and plumbing. Learn what to expect before buying a house.

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How often should I check my homes value?

While you don’t need to revisit your home’s value too often, checking on it periodically, such as once a year, is a smart move for several reasons. Knowing the current value of your home allows you to determine, for example, whether your homeowners insurance policy still adequately covers the property.

“The value of your home also affects your taxes,” Reed says. “You might be able to lower your assessment.”

It can also be helpful to know the value of your home so you know how much equity you’ve accumulated, which could allow you to qualify for a home equity loan or line of credit, or cash-out refinance.

Of course, knowing the value of your home is very important if you’re considering selling. You’ll know where you stand with buyers, and what you could potentially take home after the costs of the transaction and taxes.

Know the Comparables

According to Zillow, the asking price of a home should be within 10 percent of the average sold price in your neighborhood. Look for home sales in the past three months. Appraisers only look at comparable homes sold in the last three months. Learn the secrets first-time home buyers need to know.

Check Out Sold Comps

Compare the original list prices of the homes to the final sales prices to determine any price reductions. Compare the final list prices to actual sold prices to determine ratios. Ideally, compare to at least three properties that sold at market value.

Most local assessors' offices will provide lists of sales, and some newspapers publish quarterly sales reports in their business and/or real estate sections.

It's common for homes to sell for more than 100% of list price in a seller's market. Homes generally sell for list price or less in a buyer's market.

Adjust final sales prices up or down for lot-size variances, configuration, and amenities or upgrades.

My homes value went down. What should I do?

While home values across the board have increased, there could be factors beyond the homeowner’s control that can cause prices to decline.

“Local political issues, climate changes, transportation and employment opportunities — or lack of these last two things — can influence home values,” says Gerard Splendore, an associate broker with Warburg Realty in New York City. “Selling may not be a good idea, unless it is apparent that values will continue to decrease.”

If you can wait out a downturn rather than making a rash decision, that may often be best.

“Home property values are typically influenced by the current economic climate, as well as the supply of houses on the market, which will change over time,” Duffy says. “If you can prolong moving, housing prices will eventually start to rebound.”

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2. Work with a realtor

Realtors have their own techniques for determining a home’s value, and it can be helpful to get a second opinion to go along with the estimates from an online valuation tool. The process many realtors use to estimate a home’s value is called a Comparative Market Analysis (CMA).

A CMA includes information about comparable homes (also known as “comps”) in your area. According to Nolo, a good CMA can tell you what homes similar to yours are selling for, how long it’s taking them to sell, and what homes sold for compared to their original list price.

When working up a CMA, realtors typically look for recently sold homes that are similar in:

  • Size
  • Location
  • Number of bedrooms/bathrooms
  • Style and view
  • Home type (e.g. single-family home, condo, townhome, etc.)
  • Recent sales price

In preparing a CMA, realtors often look at data from the local Multiple Listing Service (MLS). It’s a database of properties in a given area that are listed for sale or have a sale pending.

In your quest to determine your home’s value

In your quest to determine your home’s value, another tool you might come across is the Broker Price Opinion (BPO). In some states, you need a license to provide one, whereas you don’t for a CMA. The Appraisal Institute maintains information on state BPO laws.

BPOs are often briefer than a CMA and are more often used for short sale or foreclosure situations instead of for regular home sales. They are also slightly more likely to cost money vs. being free.

Keep in mind that a CMA or a BPO can still miss the mark on your home’s value because they may not take into account every feature of the property that affects value. That’s something you can address by following the next step in this guide.

Related Resources

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Home Appraisal Tips For Buyers, Sellers And Refinancers Home Buying – 5-minute read April 05, 2022 Appraisals are almost always a required part of the home buying and refinancing process. Let’s look at what an appraisal is and review some tips that refinancers, sellers and buyers can use for the inspection. Read More

What Is Fair Market Value (FMV) In Real Estate And How Is It Determined? Mortgage Basics – 4-minute read Lauren Bowling – February 26, 2022 Fair market value (FMV) in real estate is an assessment of a property’s worth in an open market. Learn how FMV is determined and what it’s used for. Read More

Should I Remodel Or Move? Home Buying – 8-minute read Miranda Crace – February 26, 2022 Wondering if you should buy a new home instead of remodeling? Explore statistics on costs and learn the pros and cons. Read More

3. Partner with a top real estate agent

While technology certainly makes it easier for homeowners to get an estimate of their home’s worth online, if you want the most accurate estimate possible, you’ll need to call in the professionals.

Wilkins says that in some cases, homeowners have contacted her after getting a real estate house price estimate themselves, only to find that their estimate was 20% higher than the fair market value. In this case, she comes up with a well-researched comparative market analysis based on market conditions and comp sales in the area. “We work as a team with the seller to make sure we select the right price,” she says.

There are a few key reasons why working with a top real estate agent adds value to the process.

  • Access to the MLS: Agents have access to the local multiple listing service (MLS) in your area, which provides data points that you can’t find elsewhere — and will help your agent come up with the best real estate house price estimate for your property.
  • Local insights and experience: Working with a top real estate agent in your area provides a level of knowledge and area expertise to the process that simply can’t be replicated by technology alone. This knowledge includes local market trends, buyer preferences and how the condition and characteristics of each unique property impact its value.
  • Valuable contact for future plans: Working with an agent on a home estimate can also put you in a good position if or when you’re ready to put your house on the market. Especially if a home sale is in the back of your mind, you might want to contact a few qualified agents for estimates and then compare the CMAs before making up your mind.

HomeLight’s agent finder will connect you with top agents in your area and help you come up with an estimate based on area trends, the market and your home’s features.

Does the Zestimate determine fair market value?

Buyers can look at the value of a house on Zillow using the Zestimate. Zillow’s estimated home value should be used as a starting point, but it shouldn’t be the only data you use in determining a home’s value. The Zestimate is based on a sophisticated and proprietary algorithm which calculates both public and user-submitted data to estimate a valuation range for homes.

The Zestimate is not a replacement for an appraisal, CMA or another home value estimator.

2. Conduct a CMA

Run a comparative market analysis (CMA) on the property. A CMA will match your property to comparable properties to build a statistical breakdown of what your home may be worth, in relation to similar nearby properties with matching or similar features. Fair market value largely factors in other properties, much like a “blue book” compares similar vehicle features to comprise an estimated value for autos.

Square-Foot Cost Comparisons

The buyer's lender will order an appraisal after you receive an offer, so you'll want to compare homes with similar square footage to come as close to the eventual appraised value as possible. Appraisers don't like to deviate more 25%, and they prefer to stay within 10% of net-square-footage computations. Comparable homes are those that are 1,800 to 2,200 square feet if your home is 2,000 square feet.

Average square-foot cost doesn’t mean you can simply multiply your square footage by that number, at least not unless your home is average sized. The price per square foot rises as the size decreases, and it decreases as the size increases.

Larger homes have smaller square-foot costs, and smaller homes have larger square-foot costs.

The consequences of valuing a home incorrectly

For buyers, the biggest risk in valuing a home incorrectly is overpaying. Other consequences include loosing financing after appraisal or not getting your offer accepted at all.

Overpaying

If you value a home too high, you may set yourself up to be underwater on your investment, especially if market conditions are volatile. Plus, the more you borrow, the more you have to repay!

Low appraisal

Even if you and the seller agree on a price, the appraiser’s valuation will determine the amount your lender will loan for the property. When you agree to pay too much, it can be hard to get financing. If the appraisal comes in too low, it’s possible you will have to come up with a larger down payment, or you risk the deal falling apart.

Missing the opportunity

There’s also some risk in valuing a home too low. If you miscalculate, the seller may not accept your low offer and you may have to move on to another home.

Best Practices

Remember that net gain is more important than your final selling price. For example, you would be better off selling for $250,000, while covering no closing costs, than you would selling for $255,000 while covering $8,000 in closing costs. There’s a difference of $3,000 in the end. So always look at the big picture.

We believe that interviewing multiple agents is the best way to set the price right on your home. When you get the perspective of several agents, it’s easier to tell which one understands local market conditions the best in order to set the price right. If you choose an experienced agent with UpNest who is a great marketer, strong negotiator, and knows how to determine the best listing price for your home, then you’re in a great position to sell for the highest net gain possible.

Why Its Important to Know Your Homes Value

Knowing how much your house is worth helps you sell it for the right price from the start. Not really understanding your home’s value could lead you to undersell or oversell.

Price your home too high and buyers will pass you up without ever stepping through the door—which could end up forcing you to slash the price later. Price it too low and you could lose thousands of dollars. The right price gets you the most money in the least amount of time.

Home value is also important in helping you make decisions when it comes to handling things like:

How Often Should I Check My Home Value?

Getting an idea of your home value at least once a year could be useful. But you probably don’t need an expert’s opinion each time—unless you’re doing something big like selling or refinancing.

Since the value of your home influences things like insurance and taxes, keeping a pulse on how much your house is worth on a yearly basis could help you save money.

For example, if you bought your house with a down payment lower than 20%, you’re probably paying for PMI—an insurance that protects your lender (not you) in case you stop making monthly payments.

If your home value goes up to the point where you now own 20% or more of the house, you can ask your lender to cancel your PMI and save yourself a ton of money!

QA: Assessing your home’s value

What’s the difference between market value and appraised value?

A home’s market value is determined by what a buyer would be willing to pay for the property. This figure is heavily influenced by the local real estate market: how desirable the area is, how much inventory is available, and the unique features of your home. A real estate professional will do a comp analysis prior to listing a house for this very reason — by comparing a house to those that have similar features and have recently sold, they’ll be able to come up with a market value for the property.

The appraised value is a home valuation by a state-licensed appraiser. These professionals will do their own comp analysis using homes in your neighborhood, but will combine that with a thorough walkthrough inspection of the property. This allows them to account for major upgrades or home renovations that might be missed during other estimates.

Why is there such a difference between the market value and the assessed value of my home?

Homeowners often wonder why the market value of their home is so much higher than the assessed value. The market value is the amount a buyer would pay for your home, and will fluctuate depending on the current market conditions. Generally speaking, market values have increased considerably over the past few years as demand for housing surpassed inventory levels in many areas.

The assessed value is what town and city assessors use to determine property taxes. Because an assessor is responsible for a large area, the level of detail that goes into a full appraisal isn’t possible. They also may not take into consideration the attractiveness of a particular neighborhood or how desirable a location is for prospective home buyers.

What is the best method of estimating the value of your home?

The answer here is that it depends. If you’re looking for the most accurate valuation of your property (because you’re preparing to list your house for sale, for instance), you can’t beat the accuracy of an appraisal. As we discussed above, there is a price to pay for this accuracy, however.

Otherwise, there are many advantages to having a top real estate agent in your corner as you work through a house estimate — especially if you may need an agent in the near future. Their knowledge of the local real estate market and what buyers are looking for is a huge asset for homeowners.

The Bottom Line

Regardless of how you value a property, at the end of the day, the amount of money received for a home will be negotiated between a buyer and a seller. Each party may use valuation techniques to help argue their case, but a deal is typically reached with some compromise and some personal back-and-forth.

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