Ways to determine home values

Continued from Page 9 tion process. Lenders will typically hire an independent appraiser to confirm a home’s value before they agree to issue a mortgage — they need to verify that the home is really worth the amount they’re lending the buyer.

For example, if you want to get a $300,000 loan to buy a home but it only appraises for $275,000, that’s a problem for the lender. The difference, called an appraisal gap, will need to be bridged in some way, whether by renegotiating the price or paying the difference in cash, in order for the loan to go forward.

Even if a buyer isn’t financing their purchase, they may choose to get an appraisal to make sure they’re not overpaying for the property. Homeowners also sometimes commission an appraisal before they put their home on the market (called a pre-listing appraisal) to help them figure out a fair asking price.

Other ways of determining home value

There are many ways to determine the value of a home, each with pros and cons. Some other examples include:

Real estate comps: This valuation method involves looking at similar properties in a particular area and seeing what they recently sold for. If a twobedroom, 1,000-square-foot home in your neighborhood recently sold for

$300,000, it stands to reason that another two-bedroom, 1,000-square-foot home a block or two away would likely sell for around the same amount. (Depending on each home’s condition, of course.)

Comparative market analyses: Like comps, this type of analysis relies on looking at recent sales of homes in your area. It’s typically put together by a local Realtor who knows the area well and goes into deep detail, including factors like price per square foot, condition and more.

Automated valuation models (AVMs): An AVM is a computer algorithm that uses existing data to determine the value of a property. Zillow’s Zestimate is one of the best known examples. These are a convenient starting point for determining value, but they are not the most accurate method — there are many different AVMs out there, and you may find that each will produce a different value for the same property.

Bottom line

Every property is unique, and finding the true objective value of a home is all but impossible. But you can use local comps and other information to come up with a pretty educated guess. A Realtor can be very useful in determining a home’s value, and a professional appraiser is probably going to provide the most accurate number.