How Much is My Home Worth?

That question is best answered by a simple sentence: It is worth what someone is willing to pay for it. Unless your home is sold to a ready, willing, and able buyer, the value of your home is going to be an opinion. That opinion is best provided by an appraiser. That said, keep in mind that this opinion is just that; the appraiser’s value conclusion is their unbiased opinion of value based upon the parameters that are required to use.

So how do you find out what your home is worth? Short of selling it, there are three main methods:

Appraisal

This is the most reliable method as it is an unbiased opinion of value prepared by a professional appraiser. This is the method used for most sale transactions, refinances, legal matters, relocations and any reason that requires an objective, professionally prepared estimate of market value. Appraisers are held to standards by the state and professional organizations.

Real Estate Agents

This method is marginally reliable at best. Given the number of part time agents, experience levels are typically suspect. Also suspect is agent motivation; many agents feel that if they embellish value and play to your expectations, you’ll be a potential future client. Agents make life very difficult for appraisers as they often suggest values that are simply not there. For years I taught a class titled “Why Appraiser’s Hate Real Estate Agents”, this single reason is far and away the primary one.

Self Research

This is the most unreliable method. Just as cruising WebMD doesn’t make you a doctor, cruising all of the sites on the net designed to empower you as a homeowner doesn’t make you an appraiser. There is too much information on the web and too much of it is total nonsense. Most sites are designed to capture your information and sell it to agents – their objective is selling your information. Typically they don’t offer the same level of information as professionals get, don’t filter it for accuracy, don’t account for the myriad of variables, and don’t update regularly. Lastly – are you going to candidly assess your home?

At this point, it pays to understand what the standard definition of value (market value) is:

The most probable price which a property should bring a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated: (2) both parties are well informed advised, and each acting in what he considers his own best interest: (3) a reasonable time is allowed for exposure in the open market: (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions by anyone associated with the sale.

A few critically important things to keep in mind about market value:

1. It is based upon current market conditions.

2. Data used to formulate an opinion about it must be current and data from comparable homes to yours must be used.

3. It is not based on the purchase price of your home.

4. It is not based upon what you put into your home; you are unlikely to get a “dollar for dollar” return on investment for typical upgrades.

5. It has nothing to do with what you or your neighbors think.

6. It almost always has nothing to do with what your real estate agent tells you. What they think and what they tell you often conflict – but that’s a different topic.

So for whatever reason, you need an estimate of market value on your home. Odds are that if it’s for any “official” reason, an appraiser is going to be called. There are a few different types of appraisals, but we’ll use the standard “Uniform Residential Appraisal Report (URAR) for this example.

When the appraiser calls he will make an appointment to visit the home. This is to evaluate the condition of the home, measure it, sketch the floor plan, check for any external or functional problems, and get a feel for and evaluate the area. Once that’s complete, he’ll research comparable sales and assemble a list of homes he might use in the report. A comparable (comp) is best described as “a reasonable alternative purchase to the subject (your home)”. That simply means the comps used in the appraisal should be similar – size, bedrooms, baths, age, location, schools, style, etc etc. No two homes are identical, but the comps should be as similar as possible.

Walking step by step though an appraisal is beyond the scope of this article but if you feel that your appraisal is low, you will need to know how to debate it with the appraiser. As with any debate, having factual data is mandatory. Having been in the appraisal business for almost twenty years, I’ve had my share of clients unsatisfied with my appraised value. Appraisers are not infallible, I always encouraged my clients to provide be data I might have missed. If it was credible, I considered it – I kept an open mind and changed many appraisals upon further review.

To challenge an appraisal, you need to find data that suits your argument and it needs to fall into the same parameters as that used by the appraiser. Look for comps similar in size, age, location, utility…a home that would serve you almost as well if you weren’t living in your home. They must be closed sales, not listed or pending, and they must have closed within a year – ideally within six months. If you present credible data, the appraiser should take the time to review it with you. If you present nonsense, expect a quick dismissal.

Above all, understand that homes do not always appreciate. All real estate is local; no one can make blanket statements that apply across the board. Location location location is the rule and I can show you different trends occurring in areas as small as a school district, even down to neighborhoods and streets. Buy a home to enjoy and live in, not to make a killing. Buy smart, don’t overextend while you own the home, and sell smart – you’ll be fine. Don’t let the American Dream become a nightmare.