Considering a home is usually the largest asset in an individual’s portfolio, you should always know how much it is worth. If you're considering selling your house or taking out a home equity loan, it's especially important to have a figure in mind. Luckily, there are a number of ways to calculate your home value estimate. We'll walk you through four different methods for calculating your home value: market comparison, appraisal, replacement cost, and algorithm.
Market Comparison
We have previously explored a 3-step process (which we believe is the best) to calculate your home value. This system is largely based on the comparative market analysis method – and for good reason! More often than not the most pertinent valuation for property is what buyers on the open market are willing to pay for it.
To execute this method, you'll need to research houses in your area that are similar in size and style to yours. Once you've found some comparable houses, look at recent sale prices to get an idea of what your own house might be worth. Generally, the closer in location, more applicable in size, and more recent the sale creates a more relevant comparison. You can also consult with real estate professionals in your area to do all of this for you. A top real estate agent is always willing to do this for free; the hope being that you’ll be impressed and award them your listing should you decide to sell. (This is exactly what the experienced agents at TrueParity do – a smart homeowner should take advantage of free knowledge!). You should be aware that off market homes that have been recently sold may necesitate the need for professional assistance in estimating your home's current value.
Appraisal
Another extremely credible method to calculate home value is the appraisal value method. While appraisals are generally performed for tax assessor records or other public records, they can be a useful way to assess your home’s fair market value.
To receive an appraisal, you'll need to hire an authorized professional. This is someone who is legally certified from whatever regulatory entity oversees appraisals in your area. The appraiser will visit your house and inspect things like your square footage, the condition of your property, and any unique features or amenities that your house has to offer. Based on this inspection, the appraiser will determine an estimated dollar value for your house. The downside of an appraisal is that they aren’t free; usually they will cost a few hundred dollars. Also, should an appraisal deliver an undesirable valuation of your home, contesting it can be tedious and stressful -- beware of anything that can become public data.
Replacement Cost
The third way to calculate home value is the replacement cost method. Take note, this strategy is far less reputable (and accurate, to be honest) than a market comparison or an appraisal – it just omits crucial environmental influences of the greater housing market on home prices, as well as the professional expertise of a licensed appraiser. This method is probably the least reliable home value estimator.
To execute this method, you simply determine how much it would cost to completely rebuild your house from scratch—including materials, labor, permits, and fees. It seems very straightforward, but it can actually be very difficult. The rates on construction, raw materials, plots of land, time, and so many unique elements – they are all subject to change at different times for different reasons. Even if you originally built your home, the fees for these inputs have undoubtedly changed, as have market trends in terms of aesthetic. Calculating the numerous variables in replacement costs just introduces so many areas for errors that can affect your final home valuation. Still, it is always a useful exercise to corroborate other estimates.
Algorithm
The fourth and final way to calculate home value is to leverage technology. Nowadays there are a host of apps and tools that can estimate home value at the click of a button. Use these platforms as quick reference points to check your value estimator.
To execute this calculation, simply visit a site (or even better, multiple sites) from any of the major real estate technology companies. Type in your address and in seconds you can receive detailed reports and a nice final price estimate. Platforms like Zillow, Redfin, Trulia, even Chase all use advanced algorithms and mathematical models to provide a respectable home valuation. The downside to this method is that the home value is usually in the ballpark, but almost certainly not accurate down to the dollar. Still, the speed and (absence of) cost make it a useful exercise.
Conclusion
If you're seeking a home value estimate, there are a few different ways you can calculate it yourself. An appraisal can give you a legally-recognized estimate of your house's worth if you're willing to hire a professional appraiser; otherwise, the market comparison method is your best option for estimating your house's value on your own. (Naturally, a real estate brokerage can always assist you with any comparable market analysis!). Additionally, an algorithm valuation and/or a cost replacement assessment can help validate your assumptions about your home value.
No matter which method you choose, remember to be as realistic as possible—this way, you can be sure that you're getting an accurate estimate of what your house is truly worth in your local market.
