When planning to sell your home, its value is important. Even if you do not intend to sell, a good home value estimate can help you eliminate mortgage insurance, apply for refinancing, or obtain a permanent mortgage loan product. There are several methods you can use to estimate your home value. Learn about the potential benefits and drawbacks of each option.
Why Does Your Home Value Matter?
Your home’s value fluctuates constantly based on market conditions and buyer demand. If it has been a while since you estimated your home’s value, it may be time to do a new one. Depending on what you want to do with your home or your mortgage loan, there are good reasons to know its value. Here are some of those reasons:
- Canceling your mortgage insurance: Lenders require the cancellation of mortgage insurance on conventional loans when the loan amount reaches 78% of the home’s original value. However, if your home’s value has increased, you can request to cancel the monthly fees if your mortgage balance is below 80% of the property’s current value.
- Refinancing your loan: If your home’s value has increased, you may qualify for a lower interest rate when refinancing your mortgage since a lower loan-to-value ratio provides more security for the lender. It can also help determine how much money you can access from your equity when refinancing the amount.
- Applying for a home equity loan or line of credit (HELOC): If you are hoping to tap into some of your equity through a home equity loan or a line of credit linked to your home equity, a new estimate of your home’s value can help boost the amount you can borrow.
- Listing your home: If you plan to sell your home, the estimate will help you price your home appropriately. If the price is too high, you may struggle to sell, and if it’s too low, you might leave money on the table.
- Determining how much you can afford: By subtracting your mortgage balance from your home’s market value, you can determine how much equity you have in the home, which tells you the cash you have to put down on a new home.
Note: In some cases, it may be worthwhile to know your home’s value for your peace of mind. You may be thinking spontaneously about one of the actions mentioned above but are uncertain. Or perhaps you are updating your net worth and want to have an idea of how much equity you have in the home.
How to Find Your Home Value
Depending on the reason for searching for your home value, you can follow several different methods. Here’s what you need to know and how to estimate the pros and cons of each option.
Online Valuation Tools
Online estimation tools like Zillow Zestimate and the Federal Housing Finance Agency (FHFA) House Price Index can give you a general idea of your home’s value based on certain assumptions. Zillow Zestimate is based on a proprietary formula using public data and data submitted by users. Meanwhile, FHFA provides an estimate based on your home purchase history and the average appreciation rate in your area between that date and now.
Pros:
- Ease of use and free tools.
- Can give you a good and approximate idea in just a few seconds.
- Can be a great starting point if you are considering selling, refinancing, or applying for a home equity product.
Cons:
- According to Zillow, their accuracy rate is 7.5% for homes that are not on the market.
- Does not
- The average rate of increase takes into account home improvements, demand, and other factors that may affect market value.
- It does not use formal appraisal tools from lenders and real estate agents.
- Like online appraisal tools, personally conducted comparable homes analysis is free.
- It provides a range of values based on recent sale data, taking into account current market factors.
- It is a commonly practiced method in the real estate industry, making it more credible than using online tools.
- No two homes are exactly alike, so adjustments may need to be made based on differences in improvements, condition, and other features.
- Recent sale prices vary based on several factors, so estimates are not entirely accurate.
- The process can be time-consuming, especially if done by yourself without sufficient expertise.
- You are likely to obtain a more accurate estimate than you could achieve on your own.
- It is usually free.
- It can be a good way to adjust your asking price, especially if there are no significant differences between your property and comparable homes.
- Some agents may charge a fee for a Comparative Market Analysis.
- Comparable homes analysis largely relies on external information and often is not accepted on its own for loan decision-making.
- The appraisal gives you the most accurate valuation compared to all the methods mentioned above.
- The appraiser combines all the factors used by the other methods with a comprehensive view of your home.
- Appraisals are more credible than other options.
- An appraisal is the most expensive method for estimating a home’s value. Fees can vary depending on where you live, but expect to pay around $310 to $400, according to data from HomeAdvisor.
- If you hope to cancel mortgage insurance, the appraisal does not guarantee the desired outcome.
Using Comparable Homes
A common method for estimating the market value of a home is to use “comparable homes” or recent sale prices of similar homes in the area. For example, it may be reasonable to assume that two homes with approximately similar square footage, the same number of bedrooms and bathrooms, and similar features will sell for roughly the same price.
Advantages:
Disadvantages:
Requesting a Comparative Market Analysis (CMA)
A Comparative Market Analysis is similar to a comparable homes analysis, but instead of doing it yourself, a real estate agent conducts the analysis using multiple data points to determine an accurate estimate.
Advantages:
Disadvantages:
Getting an Appraisal
An appraiser is a professional who visits your home and provides a value based on comparable homes as well as the condition, features, improvements, and other specific factors of your home. Lenders typically require an appraisal when purchasing a home or requesting the removal of mortgage insurance.
Advantages:
Disadvantages:
Frequently Asked Questions (FAQs)
Is online home valuation accurate?
Online home valuations are as accurate as the data they use to calculate your home’s value. Since there are factors they do not consider, they are best used to get a rough idea of your home’s value. However, online home valuations can be helpful in the early stages of the process, as they can assist you in determining whether you should pursue an appraisal.
What is the most accurate site for home value estimation?
In its analysis of top property valuation sites, The Balance chose Redfin as the most accurate site for home value estimation. While the margin of error for off-market homes is slightly higher than Zillow (7.61% vs. 7.5%), Redfin’s estimate updates daily compared to “several times a week” for Zillow.
How can I find out my land value?
You can start by visiting the county appraiser’s office to view the assessment of your home and land separately. However, this may not give you the most current value, especially if you have recently made improvements. It can be beneficial to get help from a real estate agent or an appraiser to get an idea of your land’s value.
Source:
https://www.thebalancemoney.com/how-to-estimate-your-home-s-value-5187052
Leave a Reply