MARKET ANALYSIS
My House Has Got to Be Worth Something, Right?
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Matthew Berkley
Real Estate Agent | Architectural Historian
About Me
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Look, I get it. We all want our property worth what those third-party real estate sites say they’re worth, and sometimes, we want to throw a small appliance at our computer or phone screen and then scream expletives heard during WWE and Roller Derby events. I mean, every time I look at one of those sites, I can almost guarantee my house will be worth a lot more than what someone will pay for it.
So, is a real estate agent's professional opinion better? It sure is! You see, third-party sites are driven by algorithms and user data without considering things like architecture, design, condition, or even upgrades. In essence, your house -- and its value -- becomes, well, just like everyone’s house in the neighborhood because the sites lack the ability to discern anything special about your place. Imagine how angry you’d be if you kept swiping left or right and saw the same thing repeatedly (insert throwing the small appliance example from above). You’d be pretty frustrated, right?
When a real estate agent provides you with an estimate of the value of your house, it is based on evidence and data the interbots cannot calculate. Unless the property is a tract house and the same property (right down to the carpeted bathroom) sold within the last two or three months, there should always be a variation in the value that an algorithm cannot figure out. Our bot friends (yes, I believe they are taking over the world), while a useful, cursory tool, should never replace a real estate agent with decades of experience representing their clients whether they are selling or buying a property.
A home valuation determines the current market value of a residential property. It is crucial for real estate transactions, preventing excessive borrowing and financial losses. When getting a mortgage, the home acts as collateral. If the borrower defaults, the lender may sell the property to recover funds. A thorough home valuation safeguards the lender's ability to recover costs if the mortgage is not fully repaid.
The value of your home is calculated using a combination of factors including its location, age, size, condition, any improvements or renovations made, and recent sale prices of comparable homes in the neighborhood. It also factors in current market trends and local market conditions. The valuation tool is dynamic and can be influenced by data such as inventory trends, interest rates, and current buyer sentiment.
Online home valuations provide a good starting point and offer a general estimate of your property’s worth. However, they may not factor in recent renovations, unique features, historical value, architectural significance, and subjective market perception that could impact your home’s actual market value. For the most accurate assessment, consider scheduling an in-person appraisal.
WHAT MAKES YOU TICK?
THIS IS HOW WE DO IT
MARKET ANALYSIS
A Comparative Market Analysis (CMA) is a tool used by real estate agents to value a home. It evaluates similar homes that have recently sold in the same area. Agents find comparable sales and use them to conduct a sales comparison. In most cases, an agent will find three homes that have recently sold and are as similar to and located as close to the home being valued as possible. Each one is then analyzed to pinpoint differences between it and the home being valued. Once these differences are priced out, the price of each comp is adjusted to see what it would cost if it was identical to the home being valued were it to be sold in the current market.
APPRAISALS
An appraisal is an unbiased, written evaluation of a home based on a licensed, professional appraiser’s opinion. They are what mortgage companies use for home purchases and refinances. During a purchase or refinance, a lender is required by law to order the appraisal through an AMC (Appraisal Management Company), and the buyer (or existing homeowner for a refinance) pays the cost of the appraisal, sometimes up to $1000, depending on the size of the home and land. An appraiser does a complete visual inspection of the interior and exterior of the home, taking into consideration recent sales of similar properties and market trends. The appraiser then compiles a detailed report on the home, including an exterior building sketch, a street map showing the home and any comparable sales, photos of the home and street, an explanation of how the square footage was calculated, and other relevant information.
THE MORE YOU KNOW
REFINANCING
Lenders base the amount of their loans on the value of your property and usually allow you to borrow a maximum of 75% to 96.5% against your property. Knowing what your home is worth allows lenders to calculate your equity in the home. The more equity you have, the better terms you will receive on your refinance.
HOME IMPROVEMENTS
If you’re doing home improvement projects to increase the resale value, you want to make sure you’re not pricing it out of the market. If your home is already priced on the high-end for your neighborhood, making too many improvements could make it more difficult to sell. When you get a valuation, you can see how your home compares with others in the neighborhood and let this guide your home improvement decisions.
QUALIFYING FOR CREDIT
If you want to borrow cash against your home, getting a Home Equity Line of Credit (HELOC) could be a good option. To qualify, you must have a certain level of equity in your home. Most lenders require at least 20%. Getting a home valuation will help you determine if you qualify and will be used by the lender to make a decision on your loan.
PLANNING
Though it’s not a necessity, simply knowing the value of your home is good information to have. It will help you plan for the future and deal with unforeseen circumstances when you might be in a position that requires extra money or a quick relocation. Knowing how much equity you have in your home and how much you may be able to borrow against it or sell it for will help you respond to any financial curveballs that life throws at you.