Like most everything, home values are generally subject to the law of supply and demand. However, determining a home’s worth can be difficult due to the current economic conditions, location, comparable area sales, interest rates, and other factors. Knowing a home’s current value means greater control for the homeowner.
Why Understanding Home Values is Important
The benefits of knowing a home’s value go beyond purchasing or selling. Knowing a home’s value is also important when refinancing a mortgage or obtaining a home equity line of credit. In addition, insurance premiums and property taxes are all based on a home’s value.
Tools for Determining the Value of a Home
Several online valuation tools are available to help homeowners and buyers assess a property’s current value.
Realtors and lenders both sponsor these estimator tools. Be aware that a Realtor-driven estimator may tend to provide estimates on the high side to encourage a potential seller to contact the Realtor. Conversely, other estimator tools may provide lower estimates to inspire a potential homebuyer to look for a lender.
Here are some tools for determining a home’s current value.
- Automated Valuation Model (AVM) provides a value estimate for a property by just entering an address. The calculations are based on recent local sales and actual listings of surrounding properties.
- Realtor Comparable Market Analysis considers recent comparable sales (known as “comps”). A good indicator of a home’s suggested selling price is to compare the closing prices of two homes of similar size and condition in the same neighborhood.
- Home Price Index Calculator by the Federal Housing Finance Agency tracks price changes from millions of homes sold in the United States for the past fifty years. The tool is valuable for both owners and buyers.
- Professional Appraisers can provide an accurate assessment of a home’s value by using several variables (including comp sales, local market conditions, current listings, additions, improvements, and more). A lender’s appraisal is common practice for mortgage-supported transactions.
Buyers’ Market vs. Sellers’ Market
There can be situations in which a home’s value will vary significantly from the estimated value. One instance is when sellers are forced to compete with other sellers to attract buyers.
When the supply of homes for sale exceeds buyer demand, the buyer has greater leverage over the seller (“buyers’ market”). Homes often stay on the market longer, and real estate prices decrease in a buyers’ market.
In a “seller’s market,” the demand for homes exceeds the supply. Sellers have the advantage, and buyers must compete for fewer properties available for sale. A shortage of homes often leads to a bidding war where buyers make competing offers and drive up the price of a home beyond the seller’s initial asking price.
REAL ESTATE SPECIALIST
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