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Every homeowner is guilty of doing this: Guessing how much your house is worth.
With a tight housing supply and low mortgage rates, the real estate market has been hot for the past year. Meanwhile, homeowners may be thinking about taking advantage of these trends to tap into home equity for repairs or other needs.
The value of your home has likely gone up over the past year. According to the National Association of Realtors, the median price in May for existing homes was $350,300, a record year-over-year increase of 23.6%. The group points out that the real estate market has seen 111 straight months of year-over-year gains since March 2012.
If you’re thinking of selling your home or are just curious, here is how you can find out how much your house is worth
How Much is My House Worth?
Several factors determine the price of a house. These include location, the number of bedrooms and bathrooms in the house, its square footage, how old it is, and the style of home (colonial, split, ranch, etc.).
Other things that may increase the price of a home is the presence of a basement and whether it is finished, as well as recent home improvements both inside and outside the home.
“Curb appeal is definitely an important factor,” says Mike Hills, VP of Brokerage at Atlas Real Estate in Colorado. “One thing that I always do when I’m buying a property is compare the way the front of the house looks with the other houses up and down the street. I want to know if it is the best or worst looking house or average for the neighborhood.”
There are also elements outside of a homeowners’ control that determine the price of their home. Namely, recent sales prices of other homes in the neighborhood. Value is also determined by both the seller and potential buyer.
“An appraiser’s opinion of market value typically involves what a willing buyer will pay without undue stimulus, with buyer and seller both acting in what they consider their own best interest,” says Rachel Massey, a certified residential appraiser based in Michigan.
4 Ways to Find out How Much Your House is Worth
1. Ask a real estate agent to weigh in
One way to find out how much your house is worth is seeking out local real estate agents who could provide a comparative analysis based on pending, active, and sold homes in your neighborhood. Jason Gelios, a real estate agent at Community Choice Realty in Michigan and author of Think Like a REALTOR, says this is a reliable way to determine your house’s worth, but be prepared to deal with the realtor selling you on choosing them to list your home.
2. Check the comps in your area
You could estimate the value of your house by comparing it to neighbors’ houses that have recently sold by doing basic square footage calculations. “If your neighbor’s house is 1,800 square feet and sold for $400,000, and your house is 2,000 square feet, you can do the division and multiply it by 2,000 square feet to get a rough sense of what your house is worth,” Hills says.
3. Get an official appraisal
Massey, Gelios, and Jacqueline Sanchez, co-owner of Invested Wallet and an owner of investment properties, all recommend hiring an appraiser. “This is the most reliable way of getting your home’s value,” Gelios says, “although it is a snapshot in time and not meant to be an indicator for a long period of time.” Massey recommends finding someone local to you by asking real estate attorneys, agents, and other appraisers for their recommendations.
4. Use an online tool
The quickest way to get an idea of how much your house is worth is by putting your address into real estate websites such as Zillow or Realtor. Zillow’s tool, Zestimate, uses an algorithm to determine a home’s value based on several factors. However, Sanchez warns that “their source of data can sometimes be stale. So, although this method is fast and convenient, it can be inaccurate.”
What to Do When Your House Value Goes Up
You have a few options if you want to take advantage of your increased equity and higher net worth. After all, your home is likely your most valuable asset.
“The market value of the house matters because it is what you base all of your decisions off of,” Hills says. “Whether you choose to sell, refinance, rent it out, or keep it is all based on the market value of your home.”
The most common options are to sell the home and reap the profits or pull cash out of your investment (a home equity loan, home equity line of credit (HELOC), or a cash-out refinance are popular options). But there are drawbacks to each of these. If you sell your home to take advantage of rising home values, you’ll wind up competing with other buyers in the same market to find a new home and you could sink all your profits into your new abode.
If you decide to stay put and enjoy your rising home value, get ready for a higher tax bill in the future. “If your home value increases, it is likely because your neighbors have sold their properties, and that will lead to an increase in property taxes,” Hills says. “The property tax cycle varies depending on what state you are in, but one of the biggest drawbacks of your home value increasing is that eventually, your property taxes will increase as well.”
What to Do When Your House Value Goes Down
Did your home’s value dip below what you paid for it? Don’t panic.
“A homeowner facing a decrease in their home’s value should be aware of what that decrease is due to, whether the area is in decline, the economy in disarray, or a temporary change in the market,” Gelios says.
If you were interested in selling, your best move may be just to wait out whatever caused your home’s value to decline in hopes that it goes back up again.
“Homeowners should take a hard look at their personal situation and obtain the numbers they need so that they can make a sound decision that will benefit them,” Gelios says. “Knowing how much it costs to sell a home should be top on the list. This can be achieved by asking a realtor for a Seller’s Proceeds Form that calculates the costs if the home sells for a specified price.”
Whether you’re interested in selling your home, seeking a refinance, or are just curious, knowing what your home is worth can open multiple options for you. If the current price is not in your favor and you want to sell, try to wait out the market until it rebounds.