Before You Buy Your Home, Knowing the True Value Is Key
If you’re interested in buying a home, you will first want to know exactly what it’s worth – that much is obvious. After all, it’s perfectly reasonable to want to know a home’s value before you buy it, and this is true for a number of reasons.
For one, you want to know if you can afford that particular house. For another, you might want to have an idea of how much you could get for it if you sell it. Remember: once you buy a house, it usually becomes your most valuable asset. In addition, you want to make sure the seller is not overcharging you, offering the house for much greater than its actual value. Alternatively, if they are undervaluing the house, you might want to put in a bid, fast.
Home Value Is Tied to Your Mortgage
Finally, if you are looking for a mortgage, then you definitely need to know how big you need that mortgage to be.
The problem is that no home technically has intrinsic value. Homes, at the end of the day, are worth what the market will bear for them. Therefore, your (future) home’s value is represented in what people are willing to pay, and that number can fluctuate from year to year or even month to month.
So how can you tell the value of a home? Here are a few ways to start the process.
1. AVM
What is AVM? AVM stands for automated valuation model, and it is a great way to get a general idea of a home’s value. It’s not exact, but in the absence of other information, it can give you a rough idea based on things like tax assessments, property transfers, and other readily available factors. You can usually find AVM calculators on real estate/mortgage lending sites.
2. CMA
If you have a Realtor already, then you can ask them to do a competitive market analysis (CMA). The CMA is essentially your real estate agent’s evaluation of the home’s value. Because they are experienced with homes in the area and know how much others have been selling for, they are usually in a better position to give an accurate appraisal of how much the home is worth.
3. HPI
The HPI is the House Price Index calculator, which is available through the Federal Housing Financing Agency (FHFA). The HPI is a bootstrapping method of determining home prices, analyzing millions of transactions over the last 50 years or so to see how any given home has changed in value over that time and plot its current value.
The HPI is not only a good way to see how a home you are interested in buying may be worth, but it’s also a great way to see how the home you currently own has appreciated or depreciated over time.
4. Comparing Properties
All of the above methods include the data of what other houses in the area are worth, but you don’t need a professional degree or complicated software to use that information. The raw data of how much people have most recently paid for houses in the same general neighborhood and same general type of the one you are interested in can tell you all you need to know.
Information about home prices is everywhere online, and all you have to do is make adjustments for things like square footage and added features. Once you’ve determined the value of a home, if you want to buy it, you’ll need a mortgage. Start by comparing lenders with Online Lender Search now.
