How to determine your home value
For many homeowners, their property is the most valuable asset they own. Steadily building equity after years of paying off a mortgage can be extremely helpful when exploring other lending options. By establishing a solid financial foundation, responsible homeowners can open an array of new investment and savings opportunities.
If you’re looking to move, refinance your mortgage or leverage your home equity in some way, you’ll be limited by how much your home is actually worth. The first step to determining whether it’s time to leverage your home equity is to determine the true value of your home.
Why does home value matter?
Of course homes provide us with a comfortable place to live, but a major advantage to property ownership is expanding your personal wealth and financial well-being. Home value is the foundational incentive for mortgages, giving borrowers the opportunity to pay off their loan and eventually reap the benefits.
Here are some of the major financial advantages of understanding your home’s value:
- Building wealth
- Borrowing capacity
- Market value
Buying a home is a popular investment thanks to the potential for expanded wealth over time. After several years of paying off your mortgage, the property’s value may gave increased, gradually increasing your personal net worth every time you pay down the principal.
If you decide to sell your home down the line, you may be able to profit from the deal and be ready to take on new investment options.
If you find yourself in a position where you need a loan fast, you can dip into the equity you’ve built to secure some other loan. If the value of your home has increased significantly, you’ll have a much higher borrowing limit.
A home equity loan, for example, allows you to borrow against your ownership stake of the property in exchange for a lump sum. This effectively adds a second mortgage to your home, but gives you the capital to further expand the property’s worth, perhaps by adding a feature or making an improvement.
Knowing exactly how much your home is worth will help you understand your own ability to take out a loan. With this information in hand, you’ll be better prepared to plan your financial future.
Selling your home is a major decision, and you’ll want to be sure you’re getting the most return from such a major asset.
If you’re within three or four years of putting your home up for sale, it’s important to start paying attention to not only your home’s value, but the value of similar homes in your area. That way, you’ll be able to determine how the market develops and be ready to sell at the most opportune time.
What are the steps to determine your home’s value?
Depending on your own personal financial goals, one method of understanding your home’s value might be better suited than another.
Some methods of understanding your home’s value can involve some degree of estimation and guesswork. More in-depth tools and precise tactics are also available, but can cost more and might not be applicable to your situation.
Here’s a look at three steps you can take to determine your home’s true value:
- Using online home valuation tools
- Working with a real estate agent
- Scheduling a professional appraisal
1. Using online home valuation tools
When it comes to online home valuation tools, the internet holds a wide variety of helpful sites that can help you understand what your home is worth. These easy-to-use tools are a great way to get a broad idea of an appropriate sales price for your home.
While they can be insightful, real estate valuation websites can’t give you a number that is specific to your property. By using information from nearby sales of similar homes, websites can only estimate what your home could be worth. Listing your home for sale based on this information alone won't be enough to guarantee a fair price.
If you’ve taken steps to improve your property via renovations or additional features, a website likely won’t be able to take that into account. For a more personalized determination of your home’s value, you’ll have to work one-on-one with a real estate professional.
2. Working with a real estate agent
Hiring a real estate agent brings an elevated level of know-how to the mortgage and home valuation process. Housing market trends, local regulations and proper documentation are a mystery to most of us, but these agents are experts at getting their clients the most from a real estate transaction.
For sellers, agents play a vital role in determining the home’s value. With a deep understanding of the area’s history and current market trends, these agents are able to strategically price a home that will appeal to the right buyers while ensuring you get maximum possible value from the sale.
Once the mortgage process gets underway, however, real estate agents cannot provide the impartial perspective required by lenders to issue a loan. For a solid, official determination of an appropriate sales price, you’ll have to work with a licensed appraiser.
3. Scheduling a professional appraisal
Whether you’re looking to sell or refinance your home, at some point a professional home appraisal will need to be scheduled.
Licensed appraisers are hired to conduct an unbiased assessment of the property’s condition and similar sales in local markets. The appraiser then provides the most probable price a willing buyer would likely pay for the property. Appraisal happens after an initial offer is accepted and is one of the first steps toward closing the sale of a home.
Lenders might require appraisals to ensure an accurate market value estimate of the property, but as the seller, you’ll benefit from the certainty of knowing what your home is worth and how much you’ll stand to gain from the sale.
While there are ways to determine your home’s value on your own, you won’t get a dependable estimation just by visiting a website. Real estate agents not only help you market your property, but their know-how helps get potential buyers interested by attaching an appropriate price tag.
Appraisers can also help get a solid estimation, but are typically hired after the mortgage process has begun. One you know exactly what your property is worth, you’ll be better suited to plan your next move or mortgage refinance.