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Key takeaways:
- Knowing your home’s value is important for many reasons: when you’re ready to sell, refinance, tap into your equity with a home equity loan or line of credit, drop your PMI, and more.
- There are different ways to estimate your home’s value; make sure you use the method that meets the requirements of why you need to know.
- If your home’s value isn’t what you want it to be, there are several ways to improve it. Just don’t spend more than the value your improvement adds.
Your home is likely your most valuable asset, so knowing how much it is worth gives you the ability to make important decisions about your finances and your overall wealth.
It’s relatively easy to use online tools to get an idea of your home’s value, but there are other methods as well. Before you jump in, take a few minutes to first consider how you’ll use the information.
Why you need to know your home’s value
Here are four reasons you’ll want to know the value of your home.
- If you’re thinking about selling, knowing your home’s value helps you set the right price—not so high so that it sits too long on the market, and not so low that you leave money on the table. This also helps you know how much money you’ll have for the down payment on your next home.
- Want to tap into your home’s equity with a home equity loan or line of credit? You’ll need to know how much equity you have, which is based on your home’s value and your mortgage balance.
- If you’re thinking about refinancing, your lender needs to know your home’s value. It also tells you how much money you can get if you do a cash-out refinance .
- If the value of your home increases to the point where your loan-to-value (LTV) reaches 80%, you can ask your lender to cancel your private mortgage insurance (PMI). PMI rates can be as high as 1.5% of your loan, so canceling PMI will save you thousands.
Knowing the value of your home is important in other situations as well. For example, if the value of your home has decreased over time, you may be able to negotiate lower property taxes. And if your family experiences a death, divorce, or other separation of assets, you’ll need the information to establish the overall value of the estate.
Your home’s value is always changing
Your home’s value is based on many factors, including location and proximity to good schools, square footage, number of rooms, and lot size. Value is also determined by things like curb appeal and general condition, which affect the price a buyer will be willing to pay for your home. But there are things you can’t control that also impact value, such as demand influenced by interest rates, number of homes on the market, or sales prices of comparable homes in your neighborhood. All these change, so home value is something you should check at least once a year.
Know the difference between types of valuations
When it comes to your home, value can mean different things.
| Type | Valuation | Determination |
| Fair market value | The price at which your home would likely sell; what a buyer will be willing to pay | Typically calculated by an experienced real estate agent, based on a comparative market analysis |
| Appraised value | Helps your mortgage lender calculate how much they will be willing to lend for the property | Set by a licensed professional real estate appraiser, based on square footage, location, and recent sales in your neighborhood |
| Tax assessed value | Used to calculate your property taxes; this number is often but not always lower than the fair market value of the home | Established by your county or tax district’s assessor, based on location, age, size, construction type, and more |
| Insured value | Cost to repair or replace your home if it is a total loss due to fire or other covered disaster; this does not include the value of the land | Determined by your insurance company; considers square footage, location, condition, age, finishes, and local construction labor and material costs |
How to estimate the value of your home
Here are four things you can do if you want to know how much your home is worth.
- Use online tools like Zillow, Redfin, or Realtor.com
These free sites are quick and easy to use—just type in your address to find the site’s estimated home value, which is calculated using a computer algorithm based on recent sales of nearby homes, facts about your home’s size and number of rooms, and other considerations. Know that these valuations are just estimates—actual value can be up to 10% different in some cases—but they’re a good place to start. These sites often let you edit the home’s facts and features as well, which helps improve accuracy. - Do your own comparison
Use the same online sites listed above along with online real estate listings to check out homes for sale or recently sold in your area. This method allows you to compare your home with others in terms of square footage and number of bedrooms and bathrooms. It also allows you to see online pictures of the interiors of the homes, to give yourself a better idea of their condition and finishes. Be realistic here, to make sure you’re making true and fair comparisons. - Work with a realtor to get a comparative market analysis (CMA) for your home
This strategy uses the experience of a professional realtor who will look at your home while considering local housing market trends and neighborhood comps. A comprehensive CMA will use five to 10 properties that recently sold, comparing square footage, number of bedrooms and bathrooms, sales price, time on market, and other factors. Some realtors may charge for this service. - Hire a professional appraiser
This method is typically considered the most accurate, but it can cost $500 or more. A licensed professional appraiser will visit your home, take photos, and perhaps even measurements, then compare the data with comparable homes in your area to determine your home’s value. If you’re applying for a home equity loan or line of credit, or if you’re working to refinance your current loan, mortgage lenders typically require that you have a professional appraisal done to make sure the amount they’re lending is not more than the appraised value of the home.
How to increase the value of your home
It’s natural for any of us to think our home is worth more than it is—to have unrealistic expectations of its value. But what can you do if you find your home is officially not worth as much as you thought? While some things like location are difficult to change, there are things you can do to improve the value of your home. It could be as straightforward as a fresh coat of paint or new landscaping, or it may take more time, effort, and money; such as a kitchen or bathroom remodel. Whatever you do, talk with a real estate professional to make sure your investment in improvements will pay off in terms of increased value.
Final thoughts
Knowing your home’s value is good information to have. But why you need the data will determine the level of accuracy you require. If it’s just for your own peace of mind, the free online sites and DIY comps will work. But if you want to refinance your mortgage, drop your PMI to save money, or apply for a home equity loan or line of credit, you’ll need a more accurate valuation with an appraisal. And if you’re thinking about selling, don’t hesitate to use the services of a professional realtor to get a CMA so you can set a competitive price.
Since your home is a big part of your overall wealth, it’s always a good idea to keep your finger on the pulse of its value.
