Curiosity about how much your neighbor sold their house for may drive you to Zillow to check out property prices in your area. You may find yourself wondering: How much is my home worth?
There are a wide variety of opinions on how much a home is worth, but by understanding how different entities calculate home values, you’ll have a better idea of where you stand.
If you’re just curious, then figuring out your home’s value by yourself may be the only number you need. If you’d like someone with a deep institutional understanding of your market, then turning to your local Realtor® makes sense. And finally, if you’d like a number you can take to the bank (literally), see how appraisers come up with a hard number that banks rely on.
How to Figure Out Home Values By Yourself
In the beginning stages of gathering information, you may turn to popular websites with online calculators to get an estimate. It’s important to remember that these calculators only offer estimates based on widely available information, such as home sale prices and your property’s information based on the last time it was sold.
Here are some of the most highly-rated online home value calculators:
How Accurate Are Online Tools?
Even though most online calculators use the same data sources, their proprietary algorithms weigh various factors differently. This means that the prices coming out of the individual calculators can vary by several percentage points.
For on-market homes, Zestimate has an error margin of 1.9% and Redfin’s estimates are off by 2.2%, according to national experts. For off-market homes, the error margin can climb to nearly 7%. Additionally, if your home has undergone substantial updates since the last time it was sold, online calculators won’t know to factor in a brand-new kitchen or a backyard upgrade.
For an off-market home with an estimated value of $350,000, relying entirely on online calculators means the price could be off by as much as $25,000.
Pro-tip: Instead of taking the virtual calculators at face value, average three different estimates together to get a starting point for your home’s value.
How Real Estate Agents Come Up With Home Values
You may equate the listing price of a home with the home’s final sale price. What you don’t see are the negotiations over the home’s dated HVAC unit that dropped the final price by $5,000. Your Realtor®, however, has access to the MLS database and can give you the inside info for comparable homes, i.e. what they actually sold for.
Comparative Market Analysis
Realtors® price your home using a comparative market analysis (CMA). At its core, the CMA compares the prices of homes for sale, homes that have been sold, and homes that didn’t sell when they were listed. This gives real estate agents a range in which to place your home.
Once the range is set, Realtors® will compare your home to similar sold homes in the area, and in order to ensure that the comparison is an apples-to-apples one, they’ll zero in on this criteria:
- Location- Depending on the population density, agents will only compare homes within half a mile to three miles away from your home.
- Price Per Square Foot- Dividing sold prices by square footage gives your agent a baseline for comparing homes in your neighborhood.
- Home Condition- Homes with similar features such as granite countertops, wood flooring, and updated kitchens and bathrooms will be weighed against your home.
- Size- Comps won’t just compare similar numbers of bedrooms and bathrooms, but will also take into account the square footage. A 1,500 square foot home with three bedrooms will not be in the same class as a 2,500 square foot home with three bedrooms.
- Age of Home- Homes of a similar age will be compared, so a brand-new home will not be measured against a turn-of-the-century home.
- Recent Sales- So that the data is fresh, the CMA will include recent sales, typically within a year’s timespan or less.
The Real Estate Agent Advantage
Active agents who have their finger on the pulse of home prices in your area are really going to shine here. If they’re actively buying and selling, they’ve been in dozens of homes in your area, and they know what home features are a priority for buyers. They’ll also understand the nuances between school districts, neighborhoods, and real estate developers. Algorithms used in online calculators rely on published data, but real estate agents will understand that a shopping center with high-end stores is going to lift property values in a certain neighborhood, while planned long-term construction nearby can detract from the value.
How Home Appraisers Decide on Home Values
Home appraisers look at similar stats as real estate agents, but they are certified by their state’s home appraiser organization. They are hired by the lender to guarantee that the home’s purchase price is in line with the market value. You can think of them as the guarantee to a bank that they haven’t underwritten a bad loan. Home appraisers will walk through your home, measure the square footage, and note the condition of the home. They’ll write down any improvements that increase your home’s value, and they’ll provide a detailed comparison to other homes in your area that have recently sold.
Should You Purchase an Appraisal?
If you are seriously considering selling your home, purchasing an appraisal could give you the best estimate of where you should set your home’s price. However, when you go through the homeselling process, the homebuyers will purchase their own appraisal. The estimates from online calculators or real estate agents may give you an accurate enough number to make the decision on whether or not it’s time to sell your home.
The Bottom Line
As you explore the idea of selling your home, it’s always a great idea to accurately compare your homes to similar ones in the area so that you can make an informed decision. Whether you choose to scout out the market landscape with online calculators or lean on experts like a Realtor® or home appraiser, you can find out what homes are worth in your area with just a little targeted research.