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) while still getting top dollar. 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 the tax assessor 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. Assessed value is “the value that a taxing authority places upon real or personal property for the purpose of taxation.” 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 and 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, view, privacy, 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; the quality and desirability of your neighborhood and other community amenities and the specific location of your home within that neighborhood.
Why are these values often so different? The State of California only reappraises real property when there is a change in ownership or when new construction is completed. They can increase property assessments based on the California Consumer Price Index, but cannot raise the assessment more than two percent per year. 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 change slowly.
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.
Other factors that affect your home’s value include the function and appearance of the property, and how well the home and other structures are maintained. Specifically, this means updating the home to avoid the functional obsolescence of older floor plans and to keep it up to date with the most recent style trends.
Ultimately, the best indication of a home’s value is the overall supply and demand of the market. This is why I recommend you partner with a real estate professional who takes all of these factors into consideration to determine the most accurate market value. They should also have walked through and experienced your home first hand.
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
- Bedroom and bath count
- 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 has three, estimate how much that extra bathroom increased the sales price of the similar home. The adjusted sales price is the estimation of what the property would sell for if the properties were exactly the same.
Where can you find comparable sales?
Fortunately, you can find comparable home sales in a variety of places.
- The county 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.
- 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.
- Your Realtor®. I regularly do Comparable Market Analyses (CMAs) 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. I’ve also included a worksheet for you below.
Home Value Questions:
What was its CMA assessment value?
When was your home’s value last assessed?
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 or remove value based on current design trends?
- How does the floor plan, number of stories and room size proportions of the home compare to other recently sold and on market homes?
Interior:
- How does the kitchen compare to other recently sold and on market homes?
- Updated or outdated?
- Size and Layout
- Finishes
- Appliance packages
- How does the master suite compare to other recently sold and on market homes?
- Size
- First/second floor?
- Updated or outdated?
- Private access to master bath
- How do the master bath and other baths compare to other recently sold and on market homes?
- Updated or outdated?
- Size and Layout
- Shower and bath?
- Flooring
- How does the flooring and interior paint compare to other recently sold and on market homes?
- Updated or outdated?
- New and clean or worn and dirty?
Lot and Exterior:
- How does the view, lot size and privacy compare to other recently sold and on market homes?
- How does the landscaping and hard-scaping compare?
- Pools and/or spas
- Patios or decks
- Built-in barbecue or firepit
- Walkways, gardens, sitting areas
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?
Back to Location:
- How does your location compare with other nearby recently sold and on market homes?
- Backs or sides to a busy street, freeway, school, high-voltage wires, train lines?
- On a quiet street like a cul-de-sac or on a trafficked street?
If you want to accurately assess a home’s value, it’s crucial to know about the market activity of our local area. I can help! Give me a call to get the scoop on the local market, or have me do a free evaluation of your home’s value.