How Much Is My House Worth? A Beginner's Guide

How much is my house worth?

When getting a home value estimate, consider the three main types of valuation:

  • Fair market value: Fair market value encompasses what your home looks like to prospective buyers compared to other homes in the area. Consider the sale price of a home that’s similar to yours (same number of bedrooms and bathrooms, square footage or outdoor space, say). If you work with a real estate agent to help you sell your home, this is where your agent will start: by looking at comps to gauge what buyers have been willing to pay for a property comparable to yours.
  • Appraised value: While the appraised value of your home factors in comps, it differs from fair market value. To calculate appraised value, a licensed appraiser considers the location, size and condition of your home, and any renovations you’ve completed. The appraised value is what mortgage lenders look at when a borrower buys a home or refinances their mortgage.
  • Assessed value: The assessed value is the assigned dollar value of your home used by local county tax assessors to determine property taxes. “Tax assessors calculate assessed value based on various factors, which may include the appraised value and the fair market value, as well as any home improvements, whether you generate income from the property, and any tax exemptions,” explains Jade Duffy, a Realtor with TXR Homes based in Carlsbad, California. Usually, the assessed value is lower than fair market value and doesn’t actually represent how much a property could sell for, Duffy says.

Bankrate insight While an online home value estimator can be helpful in getting a sense of what your house is worth, the number you see is only a starting point, not the final word.

Best Approaches to Valuing Land

A landowner can still get an idea of what land is worth by gathering some information and doing some analysis. Here are the main ways to learn what land is worth:

Use

Ultimately, what a piece of land can and is likely to be used to determines its worth. This can depend on many factors, including:

  • Zoning. Zoning restrictions can have a significant impact. Land zoned for multifamily development may be more valuable than land restricted to one-acre single-family homes.
  • Size, shape, and dimensions. If a piece of land is too small or too irregularly shaped for a home site, that will affect its current market value.
  • Topography. A lot that is set on a steep hillside might be worth far less than a similar-sized one on flat land.
  • Flood risk. Land in a floodplain may have building restrictions or added costs associated with it that could affect its value.
  • Exploitable resources. Vacant land may come with valuable mineral rights, water rights, timber, or other natural resources.

Scarcity

Scarcity

The last unbuilt lot in a fever-hot building market may command a high value. On the other hand, there may be dozens of similar properties available. Then the value of none of them is likely to be high.

So you need to have some idea of real estate market conditions. It’s also essential to assess how unique or unusual your land is.

Sites such as the local Multiple Listing Service or Zillow can help you see whether similar pieces of land are available. Key factors to use when comparing listings to your property include:

  • The number of dwellings that could be built on the site.
  • Access to transportation facilities such as rail or highways.
  • Frontage on a commercial road, lake, or other assets.
  • The direction of population growth and building trends.

Land use and zoning regulations are essential for determining scarcity. Check with the city and zoning commission to make sure of the zoning for the parcel in question.

Desirability

This is the X factor. Desirability can include a host of things that are hard to quantify. They may include:

  • Location. How close are employers, schools, and shopping?
  • Access. Does it have access or easements to roadways?
  • Utilities. Are they nearby?
  • Traffic. An otherwise great home site might be less valuable on a busy road.
  • Neighbors. Is it near a high-end housing development? Or a landfill?
  • Aesthetics. Does it have a view? Is it wooded?
  • Improvements. Is it fenced? Does it have ponds or other amenities?

Desirability may be based as much on a first impression of what the property looks like as anything. And all of these factors have to be used with a sizable fudge factor.

The fact is, valuing vacant land is not an exact science. Even the most expert appraiser won’t be right all the time.

Knowing what goes into valuing land can help make a valuation exercise more accurate. But the ultimate deciding factor – what someone will pay for it – can’t be determined without actually selling it.

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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.

Land Valuation is an Art, Not a Science

Believe me, I would LOVE to give you a crystal clear approach to valuing land that will always work, every time – but it’s just not that simple (and if anyone tries to tell you otherwise, I’d be highly suspicious of whatever they’re trying to sell you). The fact is – even an appraiser’s opinion should be taken with a grain of salt. When we’re talking about real estate (or any other product or service, for that matter), the final rule is this:

The data (when available) can give us a halfway decent idea on this, but that isn’t something you should bet your life on. The value is mostly contingent on finding the right buyer, for the right property, at the right time. Extracting the most value from any piece of real estate is an art, not a science.

Photo by Elizabeth Gottwald

Photo by Elizabeth Gottwald

When determining land value, the best you can do is perform a reasonable amount of research. Take the time you need to carefully consider the items listed above. Dig up whatever data you can find with tools like DataTree or PropStream, look at other locally listed properties on Zillow and use the best, most unbiased judgment you can manage.

At the end of the day, if you’re making low enough offers, you should be able to protect yourself from most of the risks of land investing.

Due to the difficulty of getting perfect valuations, you should be giving yourself a healthy buffer to help offset any judgment errors you might be making along the way. This is the way I’ve been doing it for years, and even though I haven’t always done it perfectly, I’ve never gotten in over my head – and that’s something most real estate investors can’t say for themselves.

Get an Appraisal

Contact a property appraiser. Appraisers receive training and are licensed by the state to make property valuations. Appraisers charge a fee, so you might want to shop around for the best rate. To be sure an appraisal aligns with market conditions, solicit a second or third appraiser to make a valuation, just as you might get two or three opinions on a medical condition.

What factors change raw or vacant land values?

Suppose you’re considering listing your land for sale and have a general idea about its value from searching comparable listings. In that case, there are other things to consider which could increase the estimate. Read on to learn more about why your land may be worth more than you thought.

Acreage

According to the U.S. Census Bureau, the average size of a lot for a residential home is around 8,892 square feet or roughly one-fifth of an acre. Therefore, if the land you are selling is several acres or larger, the potential for selling it at a higher price is significantly increased. Not only are buyers looking for larger lots to build new homes, but if the property is big enough, developers and investors might be interested in building new subdivisions or for commercial development.

But it’s not just buyers looking to build a new home that might be interested in your land. Some dream of living out in the country or owning a farm, and if your land meets these requirements, it can increase the amount buyers are willing to pay.

Utilities

Some of the features that many land buyers look for are listings that have access to utilities already on-site or are available nearby. A lot depends on what potential buyers intend to do with the property they purchase and which utilities they prefer. For example, buyers looking to build a new home may pay more for a listing that already has access to electricity and water.

Conversely, buyers looking for land for recreational purposes such as hunting and fishing might not need any utilities, except perhaps, a road to access the property, thus saving you money by not making unneeded improvements.

Topography/Usable Space

If your land is in a desirable location, such as close to the beach or near a famous attraction, chances are your listing will sell quickly if it’s priced correctly. If your land doesn’t fall into this category, then the next step is to highlight any special features or usable space.

Does it have a view? Is there room for the kids and dogs to run? Any natural habitats or wildlife nearby? These characteristics are great to include in your listing and are what buyers are looking for. Plus, they can also add thousands of dollars to the value of your land.

Road Access

Can buyers get to your land easily? Does it have road frontage and a driveway already in place? If so, this can increase the value of your land by thousands. There are many factors to consider when estimating costs for a driveway, such as the type of material used, the length of the drive, and the professional crew performing the work. Sometimes, a load of gravel is all it takes to make a parking area on unimproved land and make it more desirable to interested buyers.

 Surrounding Area

As the saying goes: Location is everything, and that’s especially true when buying and selling real estate. But, again, the appeal of your land will vary greatly, and some who are interested in oceanfront living won’t be as interested in a listing with five acres and room for a pool. The key to selling any property is pricing it at fair market value and finding the right land buyers.

 Land Property Use

As we mentioned previously, the value of your land depends a lot on its intended use. For example, if the land is suitable for recreational purposes, buyers might not pay as much for it as land close to a major attraction or a prime building location.

Real Estate Agent Explains Lot Values

Many factors affect lot value, but the three biggest factors that affect land cost are location, size and zoning. There is nothing that affects land prices more than location, and more land is always worth more than less land. Besides that, what you can and cannot do with land is also very important. Of course, you cannot change a lot’s location, or make it bigger, but you can sometimes have it re-zoned.

Here are examples of lot value:

A $670,000 property may have a home built on it that is worth $400,000 – yielding a lot value of $270,000.

$latex Lot~Value = {\$670,000}-{\$400,000} = \$270,000&s=1$

If a home is very dilapidated, the property may be ‘sold for lot value’. That is, the home is so used up or run down that it is considered worthless.

A $250,000 property may have a lot value of $250,000 if the home is what is known as a ‘tear down’ – that is, the home has no actual value. In cases like these, there are costs involved in removal of the structures on the land, and those costs should be taken into account as well when considering the land value.

$latex Lot~Value = {\$250,000}-{\$0} = \$250,000&s=1$

An possible example of a lot value property

An possible example of a lot value property

Industrial properties are sometimes sold at lot value as well. Of a commercial or industrial building needs to be removed, the cost can be very great. Also, if there are any environmental issues that require cleanup, that cost as well as any cost to remove the structures on the land would be subtracted from the value of the lot.

Condos technically have lot values, too. Even though you almost never remove just one condo and sell a lot, some small part of the land does belong to a condo owner. In this case, ownership would be calculated by the condo owner’s unit factor (or share) of the common property.

Often, determining lot value is usually a matter of seeing what vacant lots are selling for in the area and comparing them to the subject property. A similar sized lot with a comparable location and zoning in an area will likely be worth about as much as another lot in that same area.

Looking at it the other way around, lot values are used by appraisers to determine values of real property as a whole, too. When doing an appraisal, appraisers will often use a calculation that takes into account the lot value, home value and the depreciation calculated separately from each other and then added together to get the total value of a property.

Also, lot values are used to calculate taxes when it comes to mobile homes. In a mobile home park, the owners of the land are the ones who pay taxes on the land, and the owner of the mobile home pays taxes on the home. To know what portion each party must pay, a municipality must know the lot value as well as the value of the home separately.

How to Find the Land Value of My Home

Percentage allocation is one way to find the land value of your home, says TurboTax, a software and online tax-preparation program offered by Intuit. TurboTax gives this example:

“You buy a house and land for $200,000. The purchase contract does not specify how much of the purchase price is for the house and how much is for the land. The latest real estate tax assessment on the property was based on an assessed value of $160,000, of which $136,000 was for the house and $24,000 was for the land.”

Find the land value of the home as follows:

  • Allocate 85% ($136,000 / $160,000) of the purchase price to the house and 15 percent ($24,000 / $160,000) of the purchase price to the land.
  • Your basis in the house is $170,000 (85 percent of $200,000) and your basis, or value, of the land is $30,000 (15 percent of $200,000).

So, in this example, the value of the land is $30,000, or 15 percent of the value of the overall property, and the value of the house is $170,000, 85 percent of the total value of the property overall.

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.”

So, How Much Is Your Land Worth?

A professional appraiser can provide the most accurate figure for what your land is worth. However, even that will be an estimate, and paying an appraiser isn’t always feasible.

Any landowner can learn the basics of how land is valued, however. First, gain an understanding of your land’s value characteristics and how it compares with other parcels.

Then a useful estimate for what your land is worth is well within reach. Know of a better way to find the value of your land? Contact us by email on our “contact us” page!

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