How does My Home Value Affect Me?
Your home is an investment. For many people, it’s their largest asset, influencing everything from refinancing options to resale value. Here is how to find your home value and how to leverage it.
Why Your Home Value Matters
Your home is more than a place to stay. It’s a financial resource you can use to purchase a second property, pay off debts, or even fund a vacation. Here are a couple of reasons why your home value matters:
RESALE PROFIT
This is the big one. Home value tells you how much more your house is worth than your mortgage. The difference is your potential profit if you decide to sell the home. For instance, if your mortgage is $200,000 and your net sale is $300,000, you walk away with a cool $100,000 in the bank.
ESTATE PLANNING
Your home value is one part of estate planning. Estate valuation determines how much, if any, inheritance tax your loved ones pay when you transfer your assets after death. Taking the proper precautions can minimize the tax burden on your heirs. It also reduces the chance for any post-mortem family squabbles.
TAX IMPLICATIONS
Your home value directly corresponds to how much property tax you pay. The more space and street appeal you have, the greater the property tax. The older your home and the more renovations you need, the less you pay.
Most states calculate property tax using the fair market value of a home. Here’s an example. Your property tax is two percent and the fair market value of your home is $250,000. As a result, you pay $5,000 per year in property taxes.
BORROWING POWER
Want to start a business, buy another property, or settle your debts? You can do all these things when you use your home equity creatively. Knowing your home value lets you negotiate the strongest terms for yourself when talking with your lender.
There are several ways to leverage your home value, including home equity loans, HELOCs, and cash-out refinances. The greater your home value and equity, the more money you can withdraw. Contact a United mortgage advisor to learn more.
HOMEOWNERS INSURANCE
Homeowners insurance protects you from a lot more than property damage. That includes personal liability, home inventory loss, and guest medical expenses. To determine the cost of homeowners insurance, insurance providers need to know your property value.
An accurate estimate ensures you have proper coverage. You gain financial protection in case of catastrophic damage, like a fire or flood. You also avoid paying for coverage you don’t need.
How to Determine Your Home Value
DO IT YOURSELF
The first step is to look at similar properties in your neighborhood. Realtor.com can get the job done. The houses should be roughly the same size, age, and condition as yours. Add up the sale prices for those properties and divide by the number of sales. The result is the mean price.
You can also calculate home value by square footage. Add up the final prices for similar properties and divide by the average value of each property per square foot. Multiply the answer by the number of square feet in your home. The answer is your home's fair market value.
HIRE A PROFESSIONAL APPRAISER
If you want to get a mortgage, you’ll may need to go through an appraiser. They evaluate the market, your property, and other comparable homes. All this information goes into one detailed document with your home value.
Appraisers provide you with the most information. They consider the style, renovations, location, and even the soil under your house. Currently, homes over $400,000 require an appraiser before sale, which translates to roughly 28 percent of homes. If you think your home is under that value and are looking to sell, it still might be worth the $300-$450 to get the expert’s opinion.
GET A COMPARATIVE MARKET ANALYSIS
A realtor can provide you an in-depth look into your home value with a comparative market analysis (CMA). One way to think of a CMA is a simplified version of an appraisal. It’s ideal for determining a list price when selling a home.
USE A HOME VALUE ESTIMATOR
Many websites monitor the housing market, including Zillow and Redfin. All you have do is plug in your address into the home value estimator. The website then spits out a home value estimate.
You can also use the FHFA House Price Index (HPI), the only free public index of its kind. According to the official website, the HPI "measures average price changes in repeat sales…on the same properties." It's a useful gauge of a geographic region rather than an individual house.
What to Do After Finding Your Home Value
So, you know your home's value. Now what? You have a few different options. The simplest one is to use it as the listing price to sell your home. You can also use your equity to finance significant purchases, like a second property or college education.
You may think your property value is too low. Maybe you’re toying with the idea of selling or want to secure more favorable loan terms. Whatever the reason, an appraisal can be a roadmap to investing in your home strategically and increasing its value.
One solution is home improvements. For instance, the average garage door replacement costs $3,611. The upgrade adds approximately $3,520 to your home value for a 97.5 percent return on investment (ROI). Some other high ROI renovations include:
- Kitchen remodeling
- Adding a wooden deck
- Siding replacement
- Vinyl window replacement
- Roof replacement
Additional solutions include installing smart technology, such as security camera cameras or carbon monoxide detectors, and investing in energy-efficient upgrades. Try reducing maintenance costs, too. Replacing dingy carpets with hardwood floors makes your home significantly easier to clean and more attractive to potential homebuyers.
The Bottom Line
Home values are used for more than just calculating property taxes and sale prices. They let you know what loans you can afford and whether you need to make home improvements. Knowing your home value gives you more control over these processes and provides clarity to future financial decisions.
