If you ask someone what their home is worth, chances are they’ll tell you it’s difficult to put a price on it.  They are evaluating it through an emotional filter filled with happy memories they had while living in the house. In reality, homes are assessed every day to see what tangible value they have on the open market and the factors they are evaluated against have nothing to do with emotion.

To understand how houses are rated, you need to begin with a clear definition of “market value”.  In real estate terms, market value is the price at which something can be freely bought and sold within a reasonable period of time. The concept of being freely bought and sold refers to the conditions necessary for a fair sale, meaning the buyer and seller are acting wisely and knowledgeably, and the price is not affected by any artificial stimulus.  A reasonable time in real estate parlance generally means between one to three months.

If you are setting out to determine the market value of your home it is extremely important that you are focusing on the conditions that make your home saleable. The housing market is very volatile. Home prices vary significantly from city to city and even from neighborhood to neighborhood. You need to compare your home with similar houses in the same or nearby neighborhoods.

When you do these types of analysis, you should be looking for:

·                     Site characteristics – Is it in a desirable neighborhood with good schools? Is public transportation available? How accessible is the nearest shopping by both car and other means of transportation?

·                     Design and appeal characteristics – Is the layout designed for convenience? Does the house have curb appeal, meaning its appearance on the outside as seen from the street?

·                     Construction quality- What is the condition of the original construction?

·                     Age/condition – If it is an old house, has it been properly maintained? Are there visible problems with the roof, siding, etc? Is the outside in need of a coat of paint?

·                     Improvements- Have you remodeled the kitchen or bathroom or added on extra rooms?

·                     Amenities – Is there a deck or swimming pool? Is the backyard large enough to be used for parties and barbeques?

Another yardstick for measuring market value that many realtors recommend is calculating the price per square foot. The method most commonly used is to divide the amount of livable square feet into the house's most recently appraised price. You can usually find the appraisal price from a property tax bill. Next, compare your result with the price per square foot of some of the homes that were recently sold in your area. You want to ensure that the price per square foot you are using is in line with the neighborhood norm.

Finally, you need to consider current real estate market conditions. Real estate prices rise and fall despite the quality of the individual properties. Interest rates, the state of the economy and the local job market are all factors used in determining the market value of homes in a particular area. When the market is down because of negative influences like high unemployment, the market value of your house can be lower than what you think it should be. And conversely, when the economy is booming, home values can go through the roof.  Assessing the market value of your home should be done periodically so that you are sure you have ample insurance coverage. The time to find out you are underinsured is not when tragedy strikes.