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:
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?
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?
quality- What is the condition of the original construction?
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?
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.