Content of the material
- Appraised Value of Your Home
- How to Calculate Your Home’s Assessed Value
- What online home value estimators can’t do
- How to Calculate the Assessed Value of Your Home
- Assessed Value = Market Value x (Assessment Rate / 100)
- Assessed Value = Property Tax Bill x (100 / Tax Rate)
- My homes value went down. What should I do?
- How can I add value to my home?
- How appraisers determine your home value
- The ‘sales comparison’ approach
- Other home appraisal approaches
- Low appraised value for the home seller
- Options for sellers with a low appraisal
- How Long Does a Home Appraisal Take?
- Tracking Your Homes Value
- Key takeaways
- The Bottom Line
- My appraisal came in low, now what?
- What Happens After the Appraisal?
- Rocket Sister Companies
Appraised Value of Your Home
An appraised value of a home is based on factors other than the inspection and comparison to nearby homes that have recently sold. Discover explains that a home’s market value is also based on the size of the home and land and its condition, location and age. For example, the exact same home would have a higher appraisal in San Francisco than it would in a small town in North Carolina.
Professional appraisers are brought in to conduct visual inspections of homes, but this is not always the case. When homeowners decide to refinance or get home equity loans, oftentimes, the lender will not require someone to do a physical assessment. Sometimes, though, municipal property assessors determine that an appraised value is inaccurate, and they will step in to establish what they feel is more appropriate. Note that homeowners can also challenge the appraised value of their home in most jurisdictions, which will impact property taxes.
How to Calculate Your Home’s Assessed Value
If you are wondering what the value of your home is and want to calculate the assessed value, you would need the property’s market value and assessment rate. You can then use this equation:
Assessed value = (Market value x Assessment rate) / 100
If the market value of your home is $300,000 and the assessment rate is 80%, the assessed value is $240,000.
You can also use your property tax bill and the real-estate tax rate of your county to calculate the assessed value of your home with this equation:
Assessed value = (Property tax bill x Tax rate) ✕ 100
If your property tax bill is $2,400 and your county’s department of finance tells you the real-estate tax rate is 1%, you can see that your assessed value is $240,000.
What online home value estimators can’t do
Like all tools, online home value estimators have their limits. They could have incomplete data, or data that lags the market. But they also can’t account for differences in homes that impact their values which can’t be measured by raw numbers.
Cullen points out that these tools, “aren’t taking factors into account such as quality, condition, and a mixture of property types.” He appraises homes in New England, where the same neighborhood can have a large mixture of property types.
“We may have a colonial style home, next to a ranch style home, a clam shack down the street and also some commercial influence mixed in,” he says. Each of them would have a different value, but an online tool may treat them all the same.
Some other examples of factors that impact a home’s value but an online tool can’t see include:
- A home’s positioning on a busy street
- A home’s location near public transportation
- Its closed-off layout
- Recent upgrades or improvements — like a new kitchen, roof, or bathroom
- Major changes in the community
- New amenities being built nearby — a swimming pool or new school
- Large employers that recently announced coming to the area
Online home estimates can give you a great starting point. And if you know your home is standard for the area, their estimate could be extremely accurate.
All floor plans aren’t equal. Two and a half bathrooms could mean that there is only one bathroom upstairs for four bedrooms. The truth is the floor plan and the function of the home is a very big part of an appraisal, and there is an adjustment for that. Julie Kaczor Real Estate Agent Close Julie Kaczor Real Estate Agent at Baird & Warner 4.7 Currently accepting new clients Years of Experience 29 Transactions 974 Average Price Point $383k Single Family Homes 846
How to Calculate the Assessed Value of Your Home
In order to estimate the assessed value of a home, the consumer needs the property’s market value and assessment rate. There is a second approach that allows consumers to use their property tax bill and the real-estate tax rate of their county. The information can be inputted in the calculation below:
Assessed Value = Market Value x (Assessment Rate / 100)
The first calculation is based on the market value of the property and the determined assessment rate. The market value is multiplied by the assessment rate, in decimal form, to get the assessed value. If you are unsure of the market value of your property, you can get an appraised value by hiring a professional appraiser, asking your local officials, or using the calculators provided on real estate and banking sites. To find your assessment rate, go to your county’s website or contact a city official.
Let’s say you want to buy a house with a market value of $150,000, and you want to figure out the assessed value. You decide to call the department of taxation in your town to figure out the assessment rate, which is 90%. You can multiply these two values to find the assessed value, which gives you $135,000.
Values Calculation Market Value = $150,000 Assessment Rate = 90%$150,000 x (90/100) Assessed Value = $135,000
The second calculation uses your property tax bill and the tax rate for your area. You receive this bill from the department of finance and taxation in your county about a month before your taxes are due. The tax rate is determined by the combined assessed value of the properties in the area, and is found by visiting your county’s website or calling your county’s department of finance or taxation. Using these values, you can divide the number from your property tax bill by the tax rate to get the assessed value of your home.
Assessed Value = Property Tax Bill x (100 / Tax Rate)
Let’s assume that you own a home and want to know its assessed value. You receive the property tax bill and it’s to $1,350. Then you check your county’s website to find that your tax rate is 1%. With these two values, you can now divide the bill of $1,350 by 1%, giving you $135,000.
Values Calculation Property Tax Bill = $1,350 Tax Rate = 90%$1,350 x (100/1) Assessed Value = $135,000
My homes value went down. What should I do?
While home values across the board have increased, there could be factors beyond the homeowner’s control that can cause prices to decline.
“Local political issues, climate changes, transportation and employment opportunities — or lack of these last two things — can influence home values,” says Gerard Splendore, an associate broker with Warburg Realty in New York City. “Selling may not be a good idea, unless it is apparent that values will continue to decrease.”
If you can wait out a downturn rather than making a rash decision, that may often be best.
“Home property values are typically influenced by the current economic climate, as well as the supply of houses on the market, which will change over time,” Duffy says. “If you can prolong moving, housing prices will eventually start to rebound.”
How can I add value to my home?
You don’t get a second chance to make a first impression, and this bit of wisdom can apply to your home and its value.
“Your property’s curb appeal does make a difference,” Duffy says. “Make your home welcoming and tidy — cut your grass, trim any shrubs and add some new plants or flowers.”
A fresh coat of paint either on the interior or exterior of the house will more than pay you back for the money spent, Duffy adds: “This is one of the most cost-effective ways to improve value.”
A minor bathroom or kitchen update (as opposed to large-scale renovations) can also help improve your home’s resale value. You can simply replace an outdated sink, old tiles or dated light fixtures to give these spaces a refresh.
“It also pays to install a new garage door,” Duffy says. “Some reports estimate a new garage door can increase home values by 4 percent — great curb appeal does matter.”
How appraisers determine your home value
With the exception of no-appraisal, Streamlined Refinance loans, nearly every mortgage application requires a home appraisal.
While many lenders use automated valuation models (AVMs) to get an idea of your property value, the majority of transactions still involve a licensed human.
Licensed home appraisers use three common methods to determine your property value:
The ‘sales comparison’ approach
For home buyers and homeowners financing primary homes, the “sales comparison” method is the most common.
Using this method, a home appraiser compares the subject property (i.e. your home) to other, similar homes in the immediate vicinity.
“Immediate vicinity” varies by region:
- In a dense city such as Seattle, Chicago, or San Francisco, the immediate vicinity for a home will be within 0.25 miles — usually not more than a few city blocks
- In less-dense areas, the immediate vicinity of the subject property could range to several miles
Appraisers are most interested in sales of similar homes within these areas. They look at such traits as:
- Number of bedrooms
- Number of bathrooms
- Age of home
- Quality of home finishes
- Square footage
They also consider the “appeal” of a home based on things like school districts and proximity to traffic and shopping.
Then, for each comparable home, appraisers search public records for home descriptions, sales data, and other available information about a property. This data is used to formulate the value of the subject property.
Suppose the nearly-identical home across the street recently sold for $600,000. However, it does not contain a finished basement like yours does. So your house might appraise for $620,000.
Comparable homes sold in the most recent 90 days are hugely important in the sales comparison approach. Homes sold over six months ago are less relevant.
Other home appraisal approaches
There are two other methods for appraisers to value property — the replacement cost approach and the income approach.
The replacement cost approach estimates what it would cost to buy your lot and build a house like yours, then subtracts depreciation.
This method is useful if you’re shopping for home insurance and want all potential insurers to have the same home value information. However, insurers will come up with their own valuation when they underwrite your policy.
For the income approach, an appraiser researches rental data in your housing market to determine what your home would rent for on the open market, and uses this information to calculate your property value.
The income valuation approach is most commonly used for investors and landlords.
Low appraised value for the home seller
If you’re selling a home and it doesn’t appraise for your listing price, a few things could be going on.
Your real estate agent may have listed the home too high. In this case, you may want to lower your asking price. It might be hard to find buyers who will kick in thousands of extra dollars to cover the difference, even in a seller’s market.
And there’s no guarantee that ordering another appraisal will yield the results you want.
In hot markets, though, it’s common to list a home at a higher price, assuming that competition will drive values up quickly. Some markets rise so fast that appraisal values can’t keep up.
An appraiser must base your home’s value on recent sales prices of similar houses.
Options for sellers with a low appraisal
Home sellers have a few options if the appraisal comes in low:
- Wait until a comparable home sells at a similar price
- Request that your buyer make up the difference in cash
- Lower your price to match the appraised value
The good news for sellers is that many buyers in today’s market are flush with cash. So it may not be as hard to find a buyer willing to cover the difference as it was in the past.
Some buyers may even agree to an ‘appraisal gap guarantee,’ which stipulates they’re willing to pay extra cash in the event of a low appraisal.
How Long Does a Home Appraisal Take?
The appraisal process takes an average of seven to 10 days. The appraiser visits the property and spends an hour or two inspecting the home's interior and exterior, measuring the square footage, and evaluating the home's features and fixtures. The appraiser also compares the home to other similar, recently sold homes in the neighborhood (aka "comps"). After doing the physical inspection and running the comps, the appraiser writes an appraisal report. The amount of time it takes for the entire process depends on the complexity of the appraisal and the appraiser's workload or schedule.
Tracking Your Homes Value
We’ve watched home values go up most of our lifetimes. Rising home prices have a significant effect on our wealth, and ability to borrow. Even if you don’t plan to sell your home, watching your home’s value increase over time can be a lot of fun.
Many people have used their home equity smartly to consolidate personal debt or to invest in building a business from their home. While it’s important to always understand your asset values, try not to get attached to the ups and downs too much.
Remember, these websites and others let you watch your home’s value grow aren’t exact, and the only time you’ll get a true answer to the question “how much is my home worth?” will be when you go to sell or borrow against the home.
If you want “the real thing” – as in, a price that reflects every factor that goes into a home’s sales price – you should meet with at least 2 or 3 realtors or mortgage lenders to get price suggestions.
Chances are, a realtor will be able to offer more insight into your local market than any online real estate tool ever could.
The prospect of closing the deal on a sale becomes much less intimidating when you’re heading to market with a carefully researched valuation in your back pocket. Remember, the goal is to sell your home at the right time and the right price according to your needs.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.
The Bottom Line
Appraisals are beneficial for everyone involved in the home buying process. For buyers, a home appraisal ensures they’re paying the current fair market value. For sellers, an appraisal helps them price their home competitively. And for lenders, an appraisal provides proof that a home is valued properly before they approve a mortgage.
Ready to continue your homeownership journey and apply for a mortgage or a refinance of your current home loan? Get started with Rocket Mortgage® today to learn more about the next steps in the home buying or refinancing process.
My appraisal came in low, now what?
If the bank appraisal comes in lower than the buyer’s offer price, don’t panic. Try one of these options:
- Look for errors in the home appraisal report. Request a copy of the appraisal report — as the seller, you won’t get it automatically. The lender or buyer may be willing to provide it to you, particularly if it came in low. Look for errors — did the appraiser forget the garage? Is the square footage incorrect? — that you can challenge.
- Challenge the appraisal with a Reconsideration of Value. Work with your agent on the appeals procedure. Call out issues such as poor analysis of comparable properties or square feet miscalculations.
- Negotiate with the buyer without getting a new appraisal. You can lower your price to the appraised value or ask the buyer to make up the difference. Or, you can compromise by meeting in the middle.
- Hold off on the sale. Because appraisers use closed sales as comparables they can lag the market. In March 2021, values in Swartz’s area were increasing faster than comps could keep up. The appraisers were pulling comps from January or February, and one of his sales came in low.“I could see there were 15 sales pending,” Swartz says. “I told my seller he might want to push back here and wait.” Two months later, those sales had closed for more money and his seller’s home appraised.
- Request another appraisal. Ask the lender to have another appraisal done, or bring in an independent appraiser. However, you’ll likely have to pay for it yourself and you have no assurance it will come in higher.
- Reduce your asking price. If the home sale falls through due to an appraisal you can expect other buyers to have the same issue. Keeping your asking price the same would force you to wait for a buyer who has the cash — and the willingness — to make up the difference. Consider reducing your asking price.
What Happens After the Appraisal?
After the home appraisal is completed, the next step is mortgage underwriting. The underwriter reviews the loan file to make sure everything is in order and that all the required documents have been submitted. The underwriter then assesses the risk associated with the loan and either denies or approves the loan based on all the information.
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