The Appraised Value of Home - Your House's Value On The Market

The Appraised Value of Home – Your House’s Value on the Market

/ 07:02 AM March 06, 2022

One of the most important steps in buying a house is appraising its value. You have to figure out how much a property is worth to see if it fits your budget. What’s more, this lets you know if the home is worth buying or not.

Did you know that this isn’t just useful for buying a new house? That’s why home buyers and homeowners alike need to understand how it works. Fortunately, we will talk more details about home value appraisal.

We will have to discuss what this practice means and why it’s essential. After that, we will go through how you can figure out your house’s market value. We will also explain how real estate assessors estimate home value and elaborate on how you can follow their methods.


What is the appraised value of a home?

This is the front door to a house.

People usually borrow money so they can afford a new house. We often call that a mortgage or a home loan. Yet, have you ever wondered how lenders figure out how much money to provide?

We know that they check the credit scores of loan applicants. However, they also need to check home values. Otherwise, they might lend an amount of money that’s higher than the home value.


That’s when they order appraisals of residential properties from a real estate appraiser. That person will perform a professional appraisal to see how much a borrower’s home value is.

Each professional appraiser has a different approach to determining assessed values.

They look at similar factors that reduce the home value:

  • Location
  • The home’s age
  • The materials used in building it
  • Curb appeal
  • Recent renovations
  • Real estate market trends

You may have heard of similar terms like market value and assessed value, but they’re not the same as the home’s appraisal value. It’s important to know the differences between them.

Market value vs. appraised value

This is a man who bought a new house for the correct appraised value.

This is the amount of money that a home buyer and seller negotiates as the price of a house. This is the first thing that differentiates it from the home appraisal value.

The other is that it’s just an amount you and the other party agreed upon. The buyer and the seller figure out the fair market value by checking various factors.

Here are the ones that account for market value:

  • The overall condition and features of the house
  • The amount of money that people spent when buying similar homes in the local market
  • Current trends in the real estate market

Note that the fair market value isn’t the same as the official appraisal value. Instead, it’s useful as a starting point when estimating how much a house is worth.

Read More: Earn Passive Income With House Hacking

Assessed value vs appraised value

This is a person handing the keys to a house to another person after agreeing about the appraised value of a home.

Your local government also needs to figure out how much residential properties are worth to charge the right amount of property taxes.

People refer to this amount as the assessed value. Unlike the appraisal value, It doesn’t involve a professional appraiser. Yet, home buyers and owners should pay attention to it.

That’s because it lets you estimate the amount of money you’ll put in escrow during the home buying process. Meanwhile, homeowners need it to figure out their property taxes.

Remember that property taxes are often the second-largest homeowner expense as it often costs a few hundred dollars. The mortgage comes at number one. Each state has a different way of getting an estimate.

If you feel that the computed value of your home is wrong, check your local government’s assessment website. It will show you how your county tax assessor calculates that amount of money.

What are the other types of home appraisals?

A lender’s job is to find a fitting option for borrowers. However, loan applicants have differences, so they can’t just use one method when evaluating them.

That’s why your lender may ask you to go through different types of home appraisals. This can be convenient for you and your lender.

You won’t have to let an appraiser look around your home. On the other hand, the lender won’t have to ask an assessor to head to your place.

Here are the other types of home appraisals:

  • Drive-by appraisal – During the COVID-19 pandemic, home lenders had no choice but to get assessments based solely on the home’s exterior. The Veteran’s Administration (VA) and the Federal Housing Administration (FHA) allowed for certain cases due to the situation.
  • Hybrid appraisal – Appraisers may use info from a third-party source, so they can provide an estimate without ever setting foot at a house. They may hire someone else to perform a home inspection following specific requirements. Sometimes, appraisers may simply use photos of the home.
  • Desktop appraisalRemote work has been a growing trend since the pandemic, and real estate assessors followed it too. That’s why some of them perform desktop appraisals by checking online information such as public records and home plans.

Why home appraisal is important

These are two people shaking hands after agreeing on the appraised value of a home.

As we’ve established, appraising the value of your home is important for various reasons. Figuring out an accurate home value can help with the following purposes:

  1. Real estate refinancing – Homeowners could replace their mortgage with a larger one. The latter pays off the previous home loan to receive the difference as cash. A home appraisal lets you gain as much money as possible from this.
  2. Home equity loans – You may borrow an amount based on the difference between your home’s appraisal value and the remaining amount of your mortgage.
  3. HELOCs – Also known as the home equity line of credit, the amount you can borrow is similar to a home equity loan. Instead of getting a lump sum, you can withdraw from it like a credit card.
  4. Tax assessments – If you have problems with the home tax computation, you may check the corresponding local government website. However, it can be confusing to figure out how your county estimates real estate values. That’s when you might want to get help from a professional.
  5. Insurance – You have to get insurance for your home, but that doesn’t mean you should just accept your provider’s offer outright. Perform a home value appraisal before speaking with an insurance company so that you can negotiate a better policy.

How can I estimate the value of my home?

You can find out how much your house is worth without professional assistance. Thanks to the internet, we now have more tools that can help with estimating property value.

First, you can try one of the online valuation tools available. Experts have another name for them: automated valuation model or AVM. You can find those on real estate websites like Zillow.

They use public records like deeds of ownership and property transfers and employ mathematical modeling. An AVM uses these factors to predict your property value based on recent sales and home prices in your neighborhood.

However, they often lower the accuracy of their property value assessments. Real estate websites typically use them for lead generation and marketing.

In other words, they’re meant to convince you into closing a deal with the company. Still, you can find professional AVMs that deliver superior results to the ones for home sales.

Second, you could try the house price index calculator of the Federal Housing Financing Agency (FHFA). It uses records of mortgage transactions starting from the 1970s.

The FHFA monitors the change in property value from one sale to the next. Then, it estimates the price fluctuations based on this information. Sadly, this can also be inaccurate.

It’s limited to conforming home mortgages, the home loans that are less than $647,200 and up to $970,800 in high-cost regions. This is also one online tool that doesn’t account for inflation.

This could be worth it if you have a confirming, conventional loan. The FHFA House Price Index Calculator lets you know how much your property value has increased over time.

How do real estate professionals appraise home values?

Online valuation tools can’t match a real estate agent’s accuracy. That’s because they have the technical expertise to conduct a comparative market analysis properly.

The CMA is a pricing strategy that compares someone’s house against several comparable homes.

Here’s how it works:

  1. They select those “comps” using the Rule of Three.
  2. The agent looks for three houses that sold within the last three months. If they can’t find any, those that sold within the past six months will do. Those homes should look similar and be in the same neighborhood.
  3. Next, the agent carefully identifies the qualities that set them apart from each other.
  4. The real estate assessor puts a price on each property based on analysis.

Here are some of the property details that go into the comparative market analysis:

  • Location – As we’ve established, the comparable properties in question should be in the same neighborhood. If there weren’t recent sales in the neighborhood, an agent might use other factors to find comparable properties. Examples include the noise level and the quality of nearby schools.
  • Lot size – A difference in even half an acre in the lot area can raise property value.
  • Square footage – Most people know that home value rises as it becomes bigger. Still, you have to consider the amount of livable space in each house.
  • Age and condition – Old homes tend to use outdated construction materials, which often reflect a low price in house appraisals. Still, some of them may fetch a high price once reevaluated.
  • Special features – Fireplaces, swimming pools, and patios may also increase the house’s value. Still, you have to be wary about the local market as not all these features may count in the estimate.
  • Date of sale – House prices change, so that’s why real estate agents insist on looking for comparable properties that sold within the last three to six months. What’s more, other factors may change a home’s value, such as interest rate changes by the Federal Reserve.

Can I use comparative market analysis myself?

It’s best to ask for a real estate agent’s help so that they can perform CMA properly. Still, you could try to do it yourself. Note that it will probably not be as accurate.

That’s because assessors can access more sources of data. Also, they know how to detect and analyze real estate trends.

You may perform CMA based on your local market with the following steps:

  1. Look around your neighborhood where your house is located. Take note of important features such as the nearby amenities and the most attractive blocks. Keep your eyes peeled for possible annoyances like busy streets or active train tracks.
  2. Evaluate your home by creating a detailed description of its major features. Look at the previous list for the ones you need to check.
  3. Look for comparable properties that sold within the last three to six months. If you can’t find any, look for homes with similar features like nearby schools.
  4. Take note of any differences among your comps. This will let you analyze without those factors in the way.
  5. Next, calculate the prices per square foot for each comp. Then, divide the adjusted prices by their square footage. Next, take their average by adding the prices together. Finally, divide them by the number of comps.
  6. Estimate your home value by taking its average price per square foot. After that, multiply it by its square footage to gauge the market value. Depending on how similar the comps are, you might need to adjust this price estimate. You may also need to consider real estate market trends.

Final thoughts

As you can see, appraising home values can be quite complicated. If you’re not used to this, you could easily get a wrong estimate. That’s why it’s best to speak with a real estate professional.

That way, you can get the best results without doing all the legwork. You won’t have to deal with mistakes too. Still, it’s a good idea that you read about this topic.

Your new knowledge can help you understand a real estate agent’s analysis, so you’ll have an easier time working with them. For more handy tips, read more articles from Inquirer USA.

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TAGS: Buying a Home, interesting topics, real estate, USFINANCE
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