Chances are the value of your home has changed since you purchased it. Its price will fluctuate year over year due to changes in your local market, natural appreciation, developments in your neighborhood, and any home improvements you’ve made.
Whether you’re planning on selling or staying put, it’s good practice to keep tabs on your real estate investment, and there are a few commonly used approaches that can help you gauge your property’s current market value.
Some home value estimates cost money to obtain, so they’re better saved for when you’re looking to sell or refinance your mortgage. You can also use various online tools for a quick-hit value estimate, but some are more accurate than others.
A qualified real estate agent will always be one of your best allies when it comes to arriving at a suitable sale price, but it doesn’t hurt to get an understanding of some of the approaches used to predict that magic number. Here, we’ll dive into five of the main real estate price estimate tools and resources available to homeowners.
Use a reputable online estimator tool
Real estate valuations look a whole lot different today than they did in past decades. Thanks to advances in technology, it’s now possible to hop online, plug in an address, and get an instant estimate of what your home might be worth.
How AVMs work
An automated valuation model (AVM) is a tool that uses mathematical modeling, tapping into a database of recent sales of the property in question, comparable sales in the area, and other public data to come up with an estimated property value. The AVM can serve as a good starting point or a quick check of estimated value.
One of the biggest benefits of home value estimators is their ease and transparency, providing homeowners with an instant glimpse into their property’s approximate worth. It can also be useful for correcting inaccuracies related to a home’s value and planning for renovations.
It’s important to remember that all online valuation tools don’t have the same capabilities. HomeLight’s Home Value Estimator starts by asking you to answer seven questions about your property, and then pairs that personalized information with public data to provide the most accurate estimate. You can even take it a step further by tapping into our network of Simple Sale buyers to get a real offer on your property.
Limitations to online pricing tools
AVMs aren’t the end-all-be-all of real estate price estimates, however. “An online assessment won’t be able to tell if a home has hardwood versus laminate, or whether the basement is finished or has other upgrades,” explains Christie Wilkins, a top real estate agent in Duluth, Georgia.
In the upscale neighborhoods where many of Wilkins’ listings are located, most of the homes use different builders. That means even if they’re a comparable size, two homes can differ by up to $1 million in value based on what’s on the inside. In that case, the online valuator may not have enough information to come up with an accurate number.
However, in neighborhoods where most of the homes were built in the same timeframe — perhaps even by the same builder — and have more or less of the same features, the online estimators are usually more reliable.
Rachel Massey, a certified residential appraiser in Ann Arbor, Michigan, agrees that online valuators can be reasonably reliable or wildly inaccurate, depending on the type of housing and the location.
“For a condominium unit that is in average condition in an area with many sales, the tool should be quite reliable,” she says. “On the other hand, a lakefront property will probably be very inaccurate, because the tool will pick up houses that don’t have frontage and include them in the algorithms.”
When an online valuator might be a good choice:
- The property is in a subdivision where the houses are all similar in size, age, and features.
- You’re considering remodeling your home and want to gauge its current value prior to making upgrades.
- There have been multiple sales of comparable properties in the area.
- You want to run some baseline calculations of what your house might sell for, so you can then subtract the projected selling fees and current mortgage balance to get an idea of your estimated net proceeds.
- You want to confirm or refute a valuation that was made based on sales comps.
Do your own comps analysis
Anyone who has bought or sold a house has no doubt heard the word “comps” tossed around. This is an industry term that refers to the sale prices of surrounding, comparable properties, which is used as a benchmark for assigning values (and prices) of similar homes.
Not all that long ago, the sales comps for surrounding properties were only accessible to real estate agents via private databases. But in today’s high-tech industry, it’s possible for anyone to go online and pull up listing and pricing information for pretty much any home in the country.
Keep your comps close together
Benjamin Shrauner, a Kansas City-based real estate investor who has been featured in USA Today, says it’s possible to conduct your own comps analysis to get an approximate value. He advises looking for similar properties that have sold in the last six to 12 months within a mile away and are in similar condition. “It’s also important to avoid crossing dividing lines, like highways or vastly different neighborhoods, as those would not be included in a bank appraisal,” he says.
Understand your agent’s pricing strategy
Wilkins isn’t against her clients running their own comps, as having them do some preliminary research can sometimes make her job easier. If a homeowner has already gotten an idea of what’s going on in the market and how their house fits in, it can help strengthen Wilkins’ case when it comes to making pricing recommendations. “When a seller has already looked at comps, it can help take some of the emotional aspect out of it, and I may not have to fight them to accept a more realistic price based on the market,” she says.
That said, agents specializing in certain areas may have some inside scoop that the general public may not know about, says Wilkins. And, of course, running sales comps won’t take into account any interior details that can influence a home’s value.
When it might be smart to run your own comps:
- You want to confirm a valuation that has been determined by an agent or appraiser.
- You have an emotional attachment to a house and want to help temper any bias.
- You’re not in a rush to sell and are just doing some preliminary research.
- You want to arm yourself with recent market data before meeting with an agent or appraiser.
Reach out to a top local real estate agent
While technology has helped remove a lot of the mystery surrounding real estate transactions, there’s no electronic substitute for the knowledge and experience of a real estate professional. When it comes to pricing a home, an agent offers unique value that goes above and beyond what an online value estimator provides, including knowledge of the area, characteristics and condition of the property, local market trends, and buyer preferences.
Wilkins says that in some cases, homeowners have contacted her after getting an estimated value online, only to find that their estimate was 20% higher than the fair market value. In this case, she comes up with a well-researched comparative market analysis (CMA) based on market conditions and comp sales in the area. “We work as a team with the seller to make sure we select the right price,” she says.
It’s a good idea to contact a few qualified agents to collect a few different CMAs. Then, you can pair that information with an online valuation tool to arrive at the most accurate possible estimate.
When contacting an agent is a wise choice:
- You’re not comfortable tracking down or analyzing the data yourself.
- You’ve done some preliminary research, but want to confirm the accuracy of what you’ve found.
- The property has unique features that won’t be included in sales comps or an online valuation.
- You’re ready to list your property and need guidance throughout the process.
Find out what a cash buyer would offer
Yet another option for gauging the potential value of your home is to find out what a cash investor would pay for it off-market. At HomeLight, we call this your home’s Simple Sale price, which is typically 90%-95% of its market value.
Wilkins says this route can work well in some situations. A lot of sellers appreciate the convenience and privacy of an off-market cash sale, as they can pick a closing date and avoid having people coming through their house for showings. This route also eliminates the hassle of inspections, financing contingencies, repairs, and other challenges that can come with a traditional retail sale.
Shrauner often purchases homes for cash. After providing an evaluation of the property, he determines what repairs need to be made and then calculates an overall after-repair value (ARV). He also looks at comparable sales in the area before making a cash offer. “Keep in mind that an investor’s offer will reflect the expected cost of the needed repairs and profit required,” he says.
When contacting a cash buyer could be the way to go:
- You need to sell quickly and don’t want to wait for the listing process.
- You want the flexibility of choosing your own closing date.
- You don’t want to have to worry about staging your home or opening it up for showings.
- You’re selling a property from afar and won’t be available to be physically involved in the sale.
- You don’t want to deal with making any repairs and would rather back out those costs from the purchase price.
- You want to have a “backup offer” in case the regular listing process doesn’t work out.
Check the FHFA HPI calculator
The Federal Housing Finance Agency (FHFA) offers the FHFA HPI Calculator to gauge what a property purchased at a prior time would be worth if it was sold today, taking into account the average rate of appreciation of all homes in the area. Simply choose your state, the quarter and year that you purchased the property, the quarter and year when you’re looking to sell, and the original purchase price, and the tool will calculate the approximate increase in value.
The FHFA HPI Calculator provides more of a general idea and doesn’t calculate the actual value of any specific property. Your home’s actual value will depend on its age, condition, upgrades and local market factors.
When you might want to check the FHFA HPI Calculator:
- You want to get a general idea of the rate of appreciation in your area.
- You want to gauge the trends of average house prices in your area over time.
- You’re not quite ready to sell yet and are just doing some preliminary research.
Order an appraisal
Most lenders will require a professional appraisal before finalizing a home loan, but it’s also possible to order your own appraisal to help determine the right sale price before listing.
Wilkins will sometimes order a pre-listing appraisal when selling a property that is unique, or when there aren’t many local comps. “We want to make sure we’re not leaving any money on the table, but we don’t want to price too high, either,” she explains.
Having an appraisal already in hand can help boost the seller’s credibility, justify the listing price, and help prevent lowball offers.
For pre-listing appraisals, Massey suggests that the seller seek out the opinions of a local professional appraiser as well as a few real estate agents.
“The agent is going to look at pricing a house for sale related to the current offerings, which may be stratospheric and unrealistic, while the appraiser will look at sales that have closed and are verifiable, as well as pay attention to current activity,” she explains. “The more complex the situation, the more important the appraisal and the higher fee the seller should expect to pay.”
While an early appraisal could cost a few hundred dollars, it could be worth the benefit of knowing what your home will likely appraise for when the lender orders another valuation for the buyer.
This way, you and your agent can set the price accordingly and plan for any gaps between the sale price and appraised price. However, remember that getting an appraisal doesn’t guarantee that the home will ultimately sell for that amount.
When it might make sense to get a pre-listing appraisal:
- The house has unique features that won’t be reflected in comps.
- There are limited (or no) sales comps in the area.
- You have an emotional connection or bias that may drive unrealistic pricing expectations, and you want an appraisal to serve as a reality check.
- The home has had recent upgrades or improvements.
- You want to get a more specific and accurate gauge of the home’s value, but don’t want to list it just yet.
Cosmetic upgrades, the age of your HVAC system, the condition of surrounding homes — there are countless details that go into the elusive value equation. You need to keep tabs on your property’s value to keep expectations in check and help guide your planning. Fortunately, you have options for crunching the numbers and determining where your home stands in the market.
“It’s best to get a few opinions and then use the average for your final number,” Shrauner recommends. “After a week on the market, you should have feedback, and then you can adjust the price appropriately if you haven’t already accepted an offer.”
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