Understanding a home’s true market value is about more than
pictures, software assessments and price-per-square-foot. Whether you’re a
current homeowner thinking of selling or are house-hunting, it’s crucial you
understand what factors affect home valuation. By partnering with a local
market expert, sellers will avoid pricing their house out of the market (the
kiss of death in real estate) and buyers will ensure they get a good deal on
their next home.
So, how do you accurately calculate a home’s value? After
all, the value a home is assigned by its town or county and the one it’s given
when it’s listed are often dramatically different from one another. Which one
is accurate and what does it all mean? Read on to learn more.
Assessed Value vs
Market Value: What’s the difference?
When it comes to home value, you’ll often hear two terms, assessed value and market value.
A home’s assessed
value is often the lower number of the two, and is the value given by your
municipality or county. Investopedia defines assessed value as “the dollar value assigned
to a property to measure applicable taxes.”1 Although property tax
laws vary, assessors commonly arrive at this number by taking into account the
following:
●
What comparable/similar homes are selling for in your
area.
●
The value of recent improvements.
●
Income from renting out a room or space on the
property.
●
How much it would cost to rebuild on the property.
A home’s market value,
or Fair Market Value, is the price a buyer is willing to pay or a seller is
willing to accept for a property. A skilled real estate professional will
arrive at the value using a variety of metrics, including:
●
External characteristics, such as lot size, home style,
the condition of the home and curb appeal.
●
Internal characteristics, such as the number of rooms
and their size, the type and condition of the heating or HVAC system, the
quality and condition of construction, the flow of the home, etc.
●
The sales price of comparable homes that have sold in
your area.
●
Supply and demand; that is, how many buyers and sellers
are in the area.
●
Location; that is, the quality and desirability of your
neighborhood and other community amenities.
Why are these values often so different? An assessor usually estimates your property’s market value
during a reassessment or if you make a physical change or improvement to it.2
As a result, a property may not be reassessed for many years. While your home’s
market value may fluctuate with the market, your home’s assessed value is more likely to remain steady.3
What Determines a
Home’s Value?
You’ve likely heard the motto of real estate: “Location,
location, location.” This means a home’s value relies on its location. While
the home and structures on the property will likely depreciate over time, the
land beneath it tends to appreciate. Why? Land is in limited supply and a
growing population puts increased demand on the housing supply. As a result, values increase.4
Other factors that affect your home’s value include the
function and appearance of the property, how well the home and other structures
are maintained and whether the home is a lifestyle property, such as a ranch
style with mountain views or beach bungalow.
Ultimately, the best indication of a home’s value is the
overall supply and demand of the market. This is why we recommend you partner
with a real estate professional who takes all of these factors—the assessed
value, local market conditions, home features and has physically walked through
and experienced your home— into consideration to determine the most accurate market value.
How to determine if a
property is comparable to yours.
Both assessed value and market value are partially
determined by the sales price of similar, or comparable, homes in the area. To
determine if a home is comparable to yours, look for the following
characteristics:
●
Lot size
●
Square footage
●
Home style or similar architecture
●
Age
●
Location
While you may not find a home with the same exact
characteristics as yours, you’ll likely find a few that are close. To account
for any disparity, adjust the sales prices of the comparable properties. Look
at the differences between your property and the one in question and determine
if the differences increased or decreased the sales price and by how much. For
example, if your home has two bathrooms and a similar home only has three,
estimate how much that extra bathroom increased the sale price of the similar
home. The adjusted sale price is the estimation of what
the property would sell for if the properties were exactly the same.2
Where can you find
comparable sales?
●
Your local assessor’s office is able to provide a list
of recent sales you can browse and compare or a sales history of a particular
house, home style or neighborhood.
●
Your municipality. Many cities keep local sales
information in their offices or post it online.
●
Online databases, such as a real estate database
●
Your local newspapers may offer some real estate
information in the form of quarterly sales reports in the business or real
estate sections of the newspaper.
●
Our office. We regularly do Comparable Market Analysis
of homes in our local area.
How to calculate your
home’s value.
By answering a few questions about your home, property and
the local market, you can begin to estimate your property’s value. We’ve also
included a worksheet for you below...
Home Value Questions:
When was your home last assessed?
What was its CMA assessment value?
What is your area’s average sales price?
What is your area’s average price/square foot?
Structure:
●
Is the architecture and exterior structure of the home
consistent, superior or inferior to other homes in the area?
●
Does the era or genre (Modern, Victorian, Ranch,
Cottage, etc.) add a premium based on current design trends?
●
How does the floor plan and room size proportions of
the home compare to other homes on the market?
Interior Structure:
●
How does the kitchen compare to others on the market?
○
Updated or outdated
○
Floor plan
○
Appliance packages
●
How does the Master Suite compare to others on the
market?
○
Size
○
First/second floor
○
Updated or outdated
○
Access to Master Bath
●
How does the Master Bath compare to others on the market?
○
Updated or outdated
○
Shower and bath
○
Flooring
Outside Areas:
●
Are there views, outdoor living areas or recreational
areas?
○
Pools
○
Ponds
○
Patios
●
How does the landscaping and hard-scaping compare to
the market? (e.g., built elements such as walkways, patios, decks, etc.)
Overall Condition of
Home
●
What is the level of repair needed to compete with
other homes?
●
Does the home need to be staged? How does it show?
●
What curb appeal projects are necessary to be
consistent with others on the market?
Home Assessment Worksheet
(Click the image below to download the worksheet)
(Click the image below to download the worksheet)
If you want to
accurately assess a home’s value, it’s crucial to know about the market
activity of our local area. We can help! Give us a call at 248-935-2754 to get the scoop on the
local market.
2. New York State Department of
Taxation and Finance https://www.tax.ny.gov/pubs_and_bulls/orpts/mv_estimates.htm
4.
Investopedia, http://www.investopedia.com/articles/mortgages-real-estate/08/housing-appreciation.asp?lgl=myfinance-layout
