Even if you’re not in the market to buy a new house or sell your current home (or both), it’s important to keep tabs on your home’s value for a few reasons, including insurance purposes, property tax, financial planning, and for — when you do want to sell — knowing what you’ll net (or lose). The value depends on who is looking at it, including the buyer, seller, bank, and local tax authority.
When it comes to researching your home’s value, it can be easy to turn to Internet research — but take these web estimates with a grain of salt. Valuations on sites like Zillow are advertised as just “a starting point in determining a home’s value,” and “not an appraisal.” Internet values are computed using the site’s own proprietary formula, and not by someone with close knowledge of your home and neighborhood.
So how do you avoid the black hole of internet research? Take note of these three key terms related to your home’s value.
Appraised value: The price a licensed appraiser gives your home
When you’ve found a house you love, or if you’re looking to refinance an existing loan, you’ll need to meet with your lender to talk about a mortgage. The lender will send a state-licensed appraiser to review the property and come up with an appraised value, or fair market value. To determine this value, the appraiser will tour the home, research the neighborhood, and compare three to five houses of similar size and layout to see how much they sold for within the last year.
When you’re buying a home, the appraised value helps to ensure that the bank isn’t lending you more money than the property is worth, and it can impact whether they approve you for a loan. If the house you’re trying to buy or sell is appraised for less than the asking price, as a seller, you may need to work with your lender to get a second appraisal, or as a buyer, you may want to negotiate the price of the house with the seller.
Tax value: The price the county assigns to your home
This one is straightforward. The tax value is what your local tax authority says your property is valued at, and it’s the figure they use to bill you for property taxes. But the tax value isn’t always reviewed every year — contact your county tax assessor if you have specific questions about how the value is assessed. Or, if you believe the tax value of your home is wrong, you can appeal it and the county will send a tax assessor to review your property. Just be aware that this could impact the amount you owe in taxes each year.
Sales price or listing price: The price you or a real estate agent give to your home
So if you’re selling or buying, you should find out the appraised value and tax value to determine the sales price, right? Not quite. A home’s value can increase or decrease based on many factors. For example, location is a top consideration. If a property is situated in the center of subdivision, it will hold a better value than an identical home on the perimeter, which is subject to outside noise and traffic. Your neighborhood is also a key component of location; things like school districts, crime rates, public transportation, taxes, and local amenities can all affect what price a house is listed at and how much someone is willing to pay for it.
Another key factor at play is market condition, which is influenced by the basic principles of supply and demand — in real estate that’s known as a seller’s market vs. a buyer’s market. A seller’s market occurs when there are more ready and willing home buyers than there are houses on the market, which means that multiple buyers could put offers on the same home and a bidding war can ensue, thus driving up the sales price. On the other hand, a buyer’s market — which occurs when there are more homes for sale than there are potential home buyers — can have a negative impact on the potential sales price, simply because there is less demand.
As you can see, there are many considerations that make up what your home is worth. In addition to doing your own research, you should work with a real estate agent to come up with a fair listing price or asking price for a house. And, while you can take into consideration things like appraisal and tax value, they should not fully inform those prices.