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How to Determine Your Home’s Value

Your home is about as big an investment you will ever make, and just like with any investment on Wall Street, you want to know what the value of your home is.

This is especially true if you used a mortgage to finance the purchase of your home, as the current market value of your home will determine if you could utilize a cash-out refinance or a home equity loan.

Ideally, you want to purchase a home that will increase in value over time. Real estate values can rise for any number of reasons, including an improved school system, local crime rates, access to mass transportation, and proximity to corporate hubs and job centers.

Or, maybe you just put some money into renovating your home and built a new kitchen or remodeled the basement, which will directly increase the home’s value.

On the flip side, home values can decrease, and this may or may not be your fault. For example, if you ignored lingering issues with your home, like a faulty plumbing system or ancient bathroom, than those are things you had control over.

But, if a noisy bar was just opened right near your house that caused your home’s value to drop, there is really nothing you can do about that.

As a homeowner, it is important to stay somewhat up-to-date on the current market value of your home as it can impact financing options available to you and will help you stay ahead of any property value trends before you get damaged.

But, how do you how much your house is worth?

In this article, we will run through a few different options that are available to you to better understand your home’s true market value.

Why Your Home’s Value is Important?

Knowing the value of your home is important for a few reasons, most of them pertaining to financing options that may be available to you.

First, your home’s value will be consequential in determining if you are qualified for a cash-out refinance or not. With a cash-out refinance, you refinance your current mortgage with a new mortgage of greater value, and you receive that additional value in a cash lump sum payment.

However, cash-out refinances are only available if your home’s value is greater than your outstanding mortgage balance as the home value is securing the loan. It’s possible your home’s value decreased and is less than what you owe on your mortgage.

Second, the true market value of your home is a big factor when applying for a home equity loan or home equity line of credit (HELOC). Just like with a cash-out refinance, your home’s value is securing a home equity loan or HELOC.

If your mortgage balance is less than your home’s value, you are able to tap into your home’s equity and access financing, either through a lump sum payment or line of credit.

Third and finally, it is important to not only stay on top of your own home’s market value, but also the real estate values in your neighborhood. If property values around your home are at an all-time high for whatever reason, maybe you want to sell your home and turn a profit.

In that same vein, if your home’s true market value is down, you may want to be more financially conservative as your home isn’t providing the collateral it once was.

Three Different Ways to Find Your Home’s Value

There are a few ways to find the value of your home, including getting it professionally appraised, using online tools, and comparing similar homes in your area.

Use a Professional

This can really be done in two different ways. First, you can hire a professional property appraiser, which will be required anyway from a lender during the mortgage process.

During the house appraisal process, property appraisers will evaluate the market, actual property, and comparable properties to provide you with a professional opinion on the true market value of your home.

Second, you can hire a real estate agent to conduct a comparative market analysis, or CMA. A CMA is not as precise as having the house appraised by a professional, but will provide you with the real estate agent’s opinion on the true market value of your home.

This is often done before you list your house on the open real estate market.

Use Online Tools

In 2019, there are countless websites that offer online tools you can use to get a good estimate on your home’s value. These sites use what is called an automated valuation model, or AVM, to determine the market value of your house.

AVMs are provided by popular real estate sites like Zillow or Redfin, while also being offered by certain mortgage lenders.

AVMs will use available resources, like tax assessments, ownership deeds, and property transfers, in addition to some advanced number crunching, to provide you with an estimate on the value of your home. AVMs will usually provide you with a confidence score, which is indicative of how confident the AVM is in its valuation of your home.

Compare Similar Homes

This is a more tried-and-true method of finding out the value of your home and involves a bit more legwork on your end.

You can compare similar homes online or by checking local real estate listings, and perhaps even physically going to the actual houses, especially if there is an open house. You want to compare houses that are of similar size, condition, and location.

Then, you will want to see what these comparable homes are selling for or have sold for. Remember to account for any differences between your house and the comparable home, like if the latter has a finished basement or pool in the backyard.

While this method isn’t as technical, it is a cost-effective option and can be fun!