Considering it’s likely your biggest asset, you should know how much your house is worth. Having a clear sense of your home value is crucial if you’re planning to sell your property. But it’s also important if you want to make home improvements by taking cash out or with a home equity loan or line of credit, as lending institutions will want to know the value of your home before offering you any funds.
Keep reading to learn more about home value and its influencing factors, plus how to find out how much your house is worth with and without a home value estimator.
6 Factors That Influence Home Value
Home value is the prospective sale price of a property (also known as the current market value) and is dependent on a variety of factors.
1. Home Size And Rooms
When it comes to home value, size matters—both outside and inside your house. Here are the features that are taken into consideration.
Lot size. The size of the lot your home sits on can affect its worth immensely. While homes can be renovated to increase their size, land cannot, so the acreage of your property will be a vital measure in determining its value.
Square footage. Total home square footage enables professionals to be more objective in creating an evaluation as they calculate the price per square foot. Home buyers also tend to use this calculation to determine whether the pricing of homes is competitive enough.
Livable space. Beyond the square footage, the total number of rooms is also factored in. Home buyers look for homes that have the most livable space, which tends to include everything but unfinished basements, attics and garages. So, the more livable space you have in your home, the higher its value will be.
Beds and baths. A fundamental driving force of home value is the number of bedrooms and bathrooms present in a house. Homes that have more bedrooms and bathrooms can more comfortably accommodate people, which is why they’re preferred. Bedrooms that have windows and enough room for at least a double bed are more desirable. In some states, bedrooms must have windows to be considered legal. Basement bedrooms typically require an egress window.
Homes are also worth more when the number of bathrooms is equivalent to the number of bedrooms. En suite bathrooms are always favored, but there should also be a powder room accessible from the common area.
2. Home Features
Features that tend to increase the value of your home the most are those that are uncommon for homes in your area. Esteemed features often include:
- State-of-the-art appliances
- Media rooms
- High tech security systems
- Solar panels
- Geo-thermal systems
Yet, real estate trends can influence the desirability of home features significantly, which is why the value of certain features tend to change over time. For example, while homes with formal dining rooms were once highly coveted, it’s now houses that have great rooms with open layouts that are in the most demand.
When determining whether your home has features that will increase its value, the best method is to survey the houses in your area to see how they stack up. Your living room may have a fireplace, but it probably won’t impact the value of your home if every house on the street has one, too. However, if your house is the only one in the neighborhood that has a private balcony off the master bedroom, you can bet that it will increase your home’s worth.
3. Home Age And Condition
No one wants to buy a home only to find that they have to pour money into it to make it livable. Homes that are older or in worse condition can be money pits, which is why many buyers seek out new construction.
A home’s value diminishes the more maintenance it requires. Therefore, newer homes that are in mint condition receive the highest purchasing prices on the market.
Age can be a selling point, however. If your home was built at the turn of the 20th century and has well-preserved architectural details, it will gain more attention because of its historical significance.
Regardless of your home’s age, you want to ensure that the foundation, roof and siding are all structurally sound, and all the HVAC, electrical and plumbing work is up to date. An engineering report can help you determine if the condition of your home will increase or decrease its value.
As the old saying goes, home value is all about “location, location, location.” While there are undoubtedly other relevant factors, where you decided to put down your roots will have an extraordinary impact on what it’s worth today.
Why is that? Well, home value trends in one’s city or neighborhood influence how much potential buyers will be willing to pay for it. Homes in more popular areas will garner higher prices than homes in areas that are in less demand.
Where your house is located – its proximity to highways, good schools, shopping centers, etc. – will play a role in how eager others are to buy it. So, when deciding whether the location of your home is likely to increase or decrease its value, you should think about the convenience of your area, the safety of your neighborhood and the vacancy of homes nearby.
If the streets around you are filled with empty houses, that will negatively impact your home’s value. However, if your neighborhood is teeming with residents and there is rarely a home for sale, there’s a good chance yours will be worth more.
5. Comparable Sales
Home value changes over time because it’s largely determined by how much someone is willing to pay. The best indication of what a buyer will be willing to pay for your home is what other buyers have paid for similar homes in your neighborhood.
That is why all real estate professionals will consider comparable sales, or real estate comps, when providing a home valuation. Professionals run comps to see what your home is worth. Homes are viewed as comparable based on their square footage, number of bedrooms and bathrooms, features, style and specific location.
Relevant comps will be homes that have sold within the last 90 days since the market fluctuates so often. However, depending on your area and timing, finding comps can be difficult. Sometimes it can be necessary to look back 6 months to find relevant sales for valuation purposes. For comparable sales to accurately evaluate a home’s value, there must be at least three properties considered in the calculation.
6. Real Estate Market Factors
Local market. Just as recent sales in your area impact the value of your home, so does the inventory of homes currently for sale. The homes that are being listed on the market represent your home’s competition.
In a buyer’s market, there may be a slew of homes being listed that are similar to yours. If this is the case, your home will be viewed as less valuable because it’s one of many. On the other hand, if the supply of homes in your area is minimal or the homes that are available are smaller, more outdated or in worse condition, you’ll find that your home is worth more.
National market. It’s not just the local market that impacts home value. The national market does as well. Current economic conditions can play a large role in the valuation of your home. When the economy is weak, unemployment rates rise and buying a home is far more of a risk. If consumer confidence is low and potential buyers are worried about their future finances, they will be more reluctant to pull the trigger on a new house.
APR. The annual percentage rate (APR) will also factor into your home value because it is the full cost of borrowing funds. APR includes the interest rate and the fees that a lender charges a borrower to originate a loan. If mortgage interest rates and fees are too high at the time you put your home on the market, buyers, who require financing, will be less likely to purchase a home.
How To Use A Home Value Estimator
Using a home value estimator is the simplest way to determine the value of your home, and will immediately give you a basic understanding of what your house is worth.
These tools use algorithms to estimate the value of your home based on recent sales in your area and data accessed through the public record, but should only be used as a basic starting point in determining true valuation.
Ways To Determine Home Value Without An Estimator
With A Real Estate Agent
Real estate agents have access to better tools. They can run a comparative market analysis based on the information they gain from the local Multiple Listing Service, which has a complete rundown of all sales in your area.
Real estate agents will also go beyond the comparable sales and consider what makes your home different. They’ll factor in the condition of your home, the number of rooms, the upgrades and improvements you’ve made, etc. They’ll consider all of the features that your home has that the comps lack.
Another benefit of speaking to a real estate agent is that they can offer tips for how you can increase the value of your home. While an appraiser will come by and provide you with a final estimate of your home value, a real estate agent will show you how to improve it. With their knowledge of the industry, they’re able to create a punch list of minor repairs and updates that can help you get more money for your home.
With A Home Appraisal
Home appraisals are often considered the ideal way to determine your home’s value. While a real estate agent will provide you with a home valuation based on what the agent thinks your home will sell for, an appraiser will tell you how much your home appears to be worth.
Lenders tend to rely on appraisers for home valuations because they consider the appraisal process to be slightly more rigorous. Appraisers will run comps just like real estate agents, but they’ll dig deeper into the public records, research more information about your neighborhood and complete a thorough inspection of your home.
Appraisers will open every door, turn on every faucet and check every appliance. They’ll examine the structural integrity of your home and the condition of your electrical, plumbing and HVAC system.
Home appraisals tend to cost at least $300 – $400, which is why some homeowners prefer to get the opinion of a real estate agent instead. And, even if you do get your home appraised before putting it on the market, your home will more than likely be appraised again when any potential buyer inquires about financing.
Final Thoughts On Home Value
Remember, there are a number of factors that will influence your home value. The big ones will be your home’s square footage, number of bedrooms and bathrooms, condition, location and the recent sales nearby.
You can use a home value estimator to get a basic idea of what your home is worth, but for a more accurate assessment, speak to a trusted licensed real estate agent or spring for a home appraisal. If you’re considering selling and are in the market for a new home, speak with a mortgage expert today!