When shopping for a home you want to get a good deal. You don't want to find out after closing that you could have gotten a bigger home in a nicer neighborhood for less than you just paid. Unfortunately, it can be very difficult to determine the true fair market price for something as unique as an individual home. Learn about the best ways to value a home here.
An inexact science
A true real estate professional will tell you that there is only one actual value for a home, and it's simply the highest price that a buyer is willing to pay right now. Anything else is just a guesstimate. That being understood, you can now start looking at the common factors that influence the cost of a home.
Factors that affect a home's value
One of the things that makes home valuation so difficult is the fact that hundreds of different variables make up the worth of a home. And these variables are valued differently by different buyers, and change over time as demographics and styles shift. A very abbreviated list of these components would include things like:
- Location. And we're not just talking city or neighborhood. Even the home's location on a street is a factor.
- Size. Square footage, number of levels, ceiling heights, etc.
- Land. Front and back yards, landscaping, outbuildings, etc.
- Proximity to water
- Construction. Layout, number of bedrooms and bathrooms, fit and finish
- Features. Quality and style of appliances, cabinetry, fireplaces, flooring
- Transportation. Proximity to public transportation, traffic
- Government. Taxes, quality of schools, public services
- Views and sightlines
Appraisals are formal estimates of a home's market value done by a professional licensed by the state. You won't be able to finance a new home without having a professional appraisal done, but you won't have an appraisal done on every home you have interest in. That's why it's important to have your own methods for determining the fairness of a seller's asking price.
Using past sales records for comparable homes
One standard practice in home valuations is to look at the past selling price of comparable homes. Most counties keep sales records online, or you can access them at the local courthouse. Comparable homes are those of similar size and layout in the same neighborhood.
This method of home valuation is problematic for several reasons. One, it's tough to decide what is truly a "comparable" home. You won't know what interior improvements and upgrades (or flaws) may be affecting the price that other homes sold for. Two, housing markets are not static. Prices are always either rising or falling. So looking at data that's not recent will give you a false impression of the current market. Finally, if there are not a lot of turnover in a market, there won't be enough data to make a sound evaluation.
Searching current listings
In a volatile housing market it may be better to look at the current asking price of comparable homes. Using the map-based search tool on HotPads.com, you can search for current for-sale listings on a given street or zoom out to see an entire city. You can narrow your search by factors like number of bedrooms to refine your search.
Another thing to look for is the length of time that a home has been listed for sale. Slow-moving homes are an indication of overpriced homes.
One of the things you'll need to be careful about is overpaying in a declining market, or failing to bid high enough in a rising one. Knowing how the market is trending is in your benefit. Statistics from the National Association of Realtors will let you know how different metro areas are trending. Things like populations shifts, employment opportunities and foreclosures can impacts metro area trends.
With rising energy costs and more concern for environmental awareness, energy efficiency is a growing factor in home valuations. If a home has solar or wind generators, a green roof, low-impact appliances or other "green" features it will sell for more than comparable homes without these hot design elements.
Other Buyers Guide Topics
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Other Web Info
Check out the online home value tool from Yahoo! Real Estate.