How Real Estate Professionals Determine Your Home’s Value

Whether you’re considering selling your property, refinancing, or simply curious about your investment, knowing what your home is worth is crucial. Real estate professionals utilize several ways to gauge the value of your home, from automated valuation models (AVMs) like Zillow and Redfin to more personalized methods like comparative market analysis (CMA). This post will walk you through the most common ways to determine your home’s value so you can make informed decisions.

1. Comparative Market Analysis (CMA)

A Comparative Market Analysis (CMA) is one of the most popular methods real estate agents use to estimate a home's value. This process involves looking at comparable properties, or “comps,” that have recently sold in the same area as your home. Agents compare your home's features, size, age, and condition to those of similar properties to determine a fair market value.

How it Works:

• Comps: These are similar-sized, similar-style, and similar-condition homes that have recently sold in your neighborhood.
• Adjustments: If your home has features that differ from the comps (e.g., a bigger lot, an updated kitchen, or an extra bathroom), the valuation is adjusted to account for these differences.
• Current Market Trends: Agents will also factor in local market trends, like supply and demand and historical asset appreciation to help refine the estimate.

A CMA is highly personalized but requires a knowledgeable real estate agent to perform it accurately.

2. Automated Valuation Models (AVMs)

AVMs are becoming increasingly popular due to their accessibility and ease of use. They include tools like Zillow’s Zestimate, Redfin’s Estimate, and Realtor.com’s home valuation tool. These platforms use algorithms to estimate your home’s value based on publicly available data.

How it Works:

• Data Inputs: AVMs pull from large datasets, including recent sales, property tax assessments, and other public records.
• Algorithms: These tools use statistical models to compare your home with other nearby properties. They often weigh factors like square footage, the number of bedrooms and bathrooms, lot size, and the age of the home.
• Instant Results: One of the main advantages of AVMs is that they provide immediate results without contacting a real estate professional.

While AVMs are convenient, they may not account for unique features of your home (like recent upgrades or local market nuances), so their accuracy can vary.

3. Appraisals

Hiring a professional appraiser is a good option if you’re looking for a formal and highly accurate valuation. Appraisers use a standardized approach to determine your home’s value. While most commonly used during real estate transactions and refinancings, appraisals can also be helpful for homeowners who want a reliable estimate of their property’s worth.

How it Works:

• In-Depth Evaluation: The appraiser physically inspects the home, noting its condition, layout, and any upgrades.
• Market Research: Like a CMA, an appraisal also considers recent sales of comparable properties.
• Objective Report: Appraisers follow strict guidelines and deliver an unbiased report, which lenders often use during the mortgage process.

Appraisals are highly accurate, but they come at a cost, typically ranging from $300 to $600, and can take several days to complete.

4. Online Real Estate Marketplaces

Many online real estate marketplaces, including Zillow, Redfin, and Realtor.com, offer more than just AVMs. They provide comprehensive data about the housing market, including trends in your local area. These platforms allow you to track how home values in your neighborhood are fluctuating, providing additional context to your home’s worth.

How it Works:

• Neighborhood Data: These tools show you average listing prices, sales prices, and historical data for homes in your area.
• Comparable Homes: You can often search for comparable homes for sale in your neighborhood to understand where your home fits in the current market.
• Trends & Projections: Many platforms also offer insights into housing market trends, helping you understand whether home values in your area are rising or declining.

These online tools can provide more context for your home’s value, but they should be used alongside other valuation methods for the most accurate picture.

5. Broker Price Opinions (BPO)

A Broker Price Opinion (BPO) is an informal estimate of your home’s value provided by a licensed real estate broker. Often used in situations where a formal appraisal isn’t necessary (such as foreclosure proceedings or short sales), a BPO is a more affordable alternative.

How it Works:

• Site Visit: Depending on the type of BPO, the broker may drive by the property or do a more detailed inspection.
• Comparable Sales: Like a CMA, a BPO involves comparing your home to similar properties in the area.
• Cost-Effective: BPOs are generally cheaper than full appraisals, often costing between $100 and $200.

While not as in-depth as an appraisal, a BPO can be valuable for homeowners who want a general idea of their home’s value.

Summing things up

There are several ways real estate professionals determine your home’s value, ranging from quick, automated estimates to in-depth professional appraisals. Consider using a combination of methods for the most accurate picture of your home’s worth. You can start with an online estimate to get a general idea, then work with a real estate agent for a more detailed CMA, or hire an appraiser if you need a formal valuation. Understanding your home’s value is critical to making informed decisions about your property, so it’s helpful to use the tools available to get a clear picture of where things stand.

At Flock Homes, our team uses a combination of everything to determine the most accurate valuation for prospective clients and homes in our fund. If you’re interested in exploring a tax-advantaged retirement strategy for your rental properties, call our team at (720) 703-9992 or submit your home directly for a complimentary valuation.

Important Note: This post is for informational and educational purposes only. It should not be taken as legal, accounting, or tax advice or used as a substitute for such services. Always consult your own legal, accounting, or tax counsel before taking action based on this information.