Conventional wisdom says you should leave emotion out of a home sale, and there are good reasons for it.
It’s tempting to place a high value on something you own: your home. Sometimes it takes a hard dose of reality to realize that your property isn’t perfect. Maybe your landscaping is gorgeous but your roof needs to be replaced.
But it’s tricky if you don’t know how the unique factors of your home increase or decrease its monetary value.
In this article, we’ll help you examine your home’s worth and share best practices to ensure that those offers keep pouring in once your property hits the MLS.
The Home Value Calculation
There are multiple ways to calculate how much your home is worth. You can think of them as different approaches to answering the same question—there is no single “right way” to do it. A real estate agent can run the numbers and walk you through your home’s characteristics to pinpoint value.
Comparative Market Analysis (CMA)
A comparative market analysis gathers pieces of data that help you see how your property measures up against nearby homes. You can hire a knowledgeable, local real estate agent to help, or you can search for properties in your neighborhood. Compare at least five homes that have recently sold as well as current homes on the market that have similar characteristics to your own—the same number of bedrooms and bathrooms, square footage, lot size, condition, and more.
Fair Market Value (FMV)
According to Investopedia, the fair market value is the price that you and the eventual buyer agree the home is worth. It’s not the actual property value. There are unique circumstances that are factored into the FMV that may not show up in the offer, such as the need to sell or buy quickly, or correcting an overpriced house. The FMV assumes that each party, the buyer and seller, has a reasonable knowledge of the property as well as the market.
Home Estimate Sites
Are you constantly checking your phone in bed on Friday nights to see if your Zestimate went up on Zillow? The real estate market fluctuates often, and being paranoid about the future of your home’s value is sure to set you up for added stress. According to Marketplace, missing the mark on the asking price can cause you to overprice your home and ultimately lose money. Home estimators are handy to receive a quick valuation, but remember that they have varying accuracy rates. Don’t get hung up on a Zestimate; instead, get a real estate expert’s opinion.
Purchase an Appraisal
You might be thinking, Wait, I thought buyers paid for a home appraisal…
Yes, buyers typically pay for a home appraisal as part of their closing costs when they are financing.
However, as the seller you can benefit from paying for an independent appraisal:
- An appraisal can help you understand the problematic areas of your home (a home inspection is more thorough).
- It helps you nail down an appropriate listing price, as you don’t want to overprice your home.
- If you make necessary repairs to your home, it can make negotiating sweeter for you as buyers will be less likely to ask for allowances.
What To Do if Your Home Value Skyrockets
If you receive the good news, take a moment to celebrate, and then:
- Find out if the increase will make it possible to ditch your private mortgage insurance (PMI) if you now have 20% equity in the home. If so, call and cancel your PMI to save money. You may need to provide documentation to your lender, and it may take a month for the PMI to be removed, but dropping the unneeded insurance will be worth it.
- Contact your insurance provider to have them reevaluate your homeowners policy. You don’t want to skip this step because you’ll need adequate coverage for damage or loss.
- Continue maintaining your home so the value can continue to increase and you can enjoy living in it until you’re ready to sell.
How To Deal if Your Home Value Tanks
No one wants to see their home’s value plummet before selling. Luckily, there are a few strategies you can deploy in this situation:
- If you’re not planning to sell quite yet, wait out the market. Unless you’re in a deep recession, the markets will likely be favorable and your home’s value will increase.
- Make any repairs and replace old home features (if you can afford it and have the time). Hire an expert if you don’t want to DIY or have the expertise.
- If it’s your neighbors lowering your home’s value: Approach them and offer to help partially pay for or make repairs to their home. You can volunteer to mow the lawn, help put on a fresh coat of paint, etc. The key is to ask permission to have that conversation to avoid making the situation worse.
The Bottom Line
Finding the fair market value is an important step in the selling process, one that will take some digging to determine. By seeking the opinion of an experienced agent and taking one or several practical approaches, sellers will be able to accept competitive bids for their homes.
