Maybe you’ve just started to look for a house, or perhaps you think this particular red brick beauty on the corner is the one. But because home values are constantly changing, how do you know what the property is really worth? Do property value lookup tools really help?
When even housing economists aren’t sure what’s going to happen (or by how much), then it’s normal to feel like a property value lookup is a daunting task, but there are ways you can educate yourself about home values so you can approach the negotiation table armed with numbers and facts.
Here’s what to know and where to look to ensure you make a sound real estate investment or get the best price when you sell your home.
Check out online portals
Online portals and apps are widely available and one of the most convenient ways to look up property values. Websites like Zillow, Redfin, Trulia, and realtor.com are only a few of the real estate portals you can find online.
Each of these sites also uses automated valuation models, or AVMs, to calculate property values, leaving room for differences in property valuation. Public records data also allow most of these sites to show what a property sold for over the past several years, and the AVM can use that information to offer an estimate of its market value if listed today.
“These services only look at the data they have. If it’s inaccurate data, it will reflect an inaccurate estimate of your property value. The algorithms do not take into consideration any updates, the quality of materials, or improvements, like an appraisal or a comparative market analysis (CMA) by an agent will.”
Unlike realtor.com and Zillow, Redfin is a real estate brokerage, and its agents earn a base salary. Trulia, Homes.com, realtor.com, Homefinder, and Zillow are real estate portals or aggregators. That means that they collect listings from a combination of sites and typically make money by selling leads (in other words, your contact information) to real estate agents who work in your local area.
Are online portals trustworthy?
Each of these online sites will claim the listings are as up-to-date and accurate as sites like Redfin and realtor.com, both of which are actually linked to the MLS. Overall, no website can be considered as reliable as an appraiser (or even an agent), but they can still provide a ballpark figure to evaluate a property in the early stages of your search.
Visit tax assessors’ sites
Every county and city across the U.S. has tax assessor websites where you can look up a property’s value by address, which may be the closest thing to fair-market value you can find. Properties are accessed at different times of the year to calculate property tax, and the assessed value is often not the same as the appraised or market value.
Therein lies the problem. Suppose a property is assessed in January, and you list your property in November of the same year using the assessed value. In that case, market values may have risen or fallen over that time, giving you an unreliable estimate of the actual value of your property.
Are tax assessor sites trustworthy?
Tax assessor sites are trustworthy for the information they provide. However, because there is no sales timeline or other constraints, like a free and open market, a super-accurate valuation of your property is lacking.
Study the MLS
You need a real estate agent to access the multiple listing service or MLS. An MLS listing will tell you exactly what homes are currently listed for (as well as the listing history, if it exists).
On the platform, brokers share information with other brokers and real estate agents about properties they have listed. This benefits both buyers and sellers as there is greater exposure to more properties all in one place.
Is the MLS trustworthy?
As a private database that is created, paid for, and maintained by real estate professionals, the MLS is an accurate tool for determining property values.
In fact, when a listing agreement is signed, an agent typically has between 24 and 48 hours to register a complete listing on the MLS. That means listings are up-to-date and accurate, based on location, square footage, condition, and more.
Comps — short for comparable recently sold homes — work for parties on either side of the real estate transaction.
Comps show the value of recently sold properties in the same area based on size, condition, and features. The most recent comps are best and can be used to help you determine a market value of a property you’re interested in buying or to estimate the current value of your property before you list it for sale.
Are comps trustworthy?
Comps are one of the most trustworthy ways to calculate a home’s value because they show the actual sales price of comparable properties in the local area. When buying a home, you need to know its market value so you have a place to start when making an offer, and when listing your property, you want the best listing price to attract buyers.
That said, when a house is located in a rural area where there aren’t many recently sold listings in close proximity, or when a house has unique features that aren’t reflected by other homes in the area, finding comps can be tough.
Take a look at a CMA
A comparative market analysis, or CMA, is a comprehensive assessment of a property’s value. It generally contains an analysis of a property using at least three comps by a real estate professional who’s familiar with your market.
A CMA shows the sold price of recent properties in an area within a specific time period, usually between six and 12 months.
CMAs are detailed reports that use variables such as location, size, condition, amenities, number of bedrooms and bathrooms, lot size, year built, renovations and interior improvements, and so on, to determine a property’s market value. In most cases, the process to put together a CMA requires these steps:
- You contact a broker or agent in your area. (You can request CMAs from more than one!)
- The agent or broker finds a minimum of three comps in the area. If no recent homes have sold in the area, they may use expired or unsold listings.
- Any differences between the subject property and the comps are documented and reviewed.
- Any differences are given an estimated value (price). For example, an agent may value an extra bedroom at $4,000 in your market.
- The agent or broker gives you an estimated price range based on all of the criteria so you can determine a competitive offer price or sales price.
Is a CMA trustworthy?
A CMA depends on the expertise of a local broker or agent in compiling a detailed report examining comparable properties. A CMA also shows comps within a specific area during a short time period, making CMAs a dependable way to determine a property’s value.
Evaluate a BPO
A broker price opinion, or BPO, is slightly different from a CMA or appraisal. But like a CMA, a real estate broker (who typically has more experience than a sales agent) will also consider comparable surrounding properties when deciding on a price for a particular property.
A BPO looks at location, any costs to get the property ready for sale, or what it will cost to make repairs.
There are two types of BPOs — internal and external.
- Internal: This involves spending time inside a property to examine the home’s condition.
- External: A broker accesses the outside of the property only. Think “drive-by assessment.”
Both internal and external BPOs are helpful in the early stages of setting the list price of a home. However, it’s important to realize that some state laws limit the use of broker price opinions in specific circumstances. You can check with your state’s real estate commission, the department of licensing, a real estate broker, or even a real estate attorney about the legality of using a BPO to make financial decisions or to prove a home’s value.
Is a BPO trustworthy?
It depends! This is especially true with an external broker price opinion, which is simply a “drive-by” of the property. However, a BPO can be valuable in the early stages when estimating the value of a property.
There are times when the appraisal does not meet the sales price, and most banks only lend up to the appraised value. However, if the borrower is getting a mortgage, or has a strong credit score and a 20% down payment, they may qualify for an appraisal waiver.
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Schedule an appraisal
A trained appraiser will look at the house and determine its value. Generally, an appraisal is considered the most reliable method to determine a property’s value.
Rodriquez contends that an appraisal doesn’t always justify the sales price of the house. “There are times when the appraisal does not meet the sales price, and most banks only lend up to the appraised value. However, if the borrower is getting a mortgage, or has a strong credit score and a 20% down payment, they may qualify for an appraisal waiver.”
Rodriquez contends that appraisals are subjective. “If an appraiser isn’t familiar with the area or not located nearby, getting a low appraisal is possible. If that happens, an agent can contest the appraisal by submitting at least three to four comparables to the bank. This is rare, however.”
That said, there are several reasons why an appraisal is considered credible, such as:
- Sheer numbers. Appraisers see a lot of homes, so presumably, they have a good idea of what the inventory looks like in the market.
- Access to comps. Appraisers also look at comps to evaluate a property based on condition, features, square footage, and other variables. And an appraiser knows what different features are worth in this market.
- Use of various approaches. Typically an appraiser will use a sales comparison (comps) approach to evaluate a property, but a cost approach and income approach are other ways to evaluate a property.
- Cost approach: Determines how much it would cost you to completely replace your existing house with a similar one.
- Income approach: This is the ability of your property to earn an income — say, as a rental property.
- Sales comparison approach: Puts more weight on the sale price of similar properties in a specific area within a specific time period.
- Unbiased opinion. Appraisers are objective and impartial in their assessments of the market value of your property.
- Longevity. Appraisals don’t technically expire. However, it is up to each lender if and when they want to accept an appraisal.
Rodriquez adds, “If a property I list is particularly unique, I may meet the appraiser at the property just to ensure they catch everything to make an accurate appraisal, like hardwood flooring vs. vinyl or laminate planking, or custom cabinets vs. those built on-site.”
Are appraisals trustworthy?
Generally, appraisals are very trustworthy. However, there is room for error. Even so, because appraisers are certified, trained, and unbiased in their assessments, you can be confident that an appraisal is fair in most instances.
Use the FHFA House Price Index Calculator
The FHFA House Price Calculator does not forecast the actual value of any particular home. But instead, it estimates what a house would sell for if it appreciated at the average appreciation rate for all surrounding homes. As a tool, it can be helpful to get an idea of the value of your house. However, it does not consider seasonal changes, the condition or age of your home, or any improvements you’ve made.
Is the FHFA House Price Index Calculator trustworthy?
As a place to begin, yes, the price tool is trustworthy, mainly because it takes data from the largest 100 metropolitan statistical areas (MSAs) in the U.S.
However, there are almost 400 MSAs, so for specific information on a home in your area, this tool may leave a lot of information off the table that can be useful when determining your specific home’s value.
Plug into a value calculator
Online home valuation tools use algorithms to look at millions of transactions to forecast a home’s worth. However, many valuation tools are inaccurate, as they often miss crucial data necessary to make an accurate report.
Some valuation tools are different. HomeLight asks a few specific questions about your home to ensure we have the most up-to-date data about the property, then alert a network of real estate investors in your area to ask them how much they would pay for your house today. By using this repository of cash buyers to compete for your business, you’ll see a much more accurate valuation of your home. Sometimes you’ll even see a 90% to 95% offer come in on your home’s market value before you even consider listing it!
Are value calculators trustworthy?
Some value calculators are more trustworthy than others. Much of the certainty depends on how detailed the reports are and if the valuation tool uses more than a simple algorithm to evaluate your home’s value.
If you aren’t sure what goes into a valuation calculator, read the fine print, consult several of them (and don’t trust any to have an actual appraised home value), and talk to a real estate professional — like your agent — about what’s happening in your market today.
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