Divining Your Home’s Value, The Quick-and-Dirty Way

It’s the American Nightmare: your neighbor, in an effort to avoid foreclosure, sells his house for thousands less than he paid two years ago, causing your home to plummet in value. It’s scary, but is it true? Several years ago, a real estate agent I had intended to hire seemed to think that a low sales price on one house meant a full-scale neighborhood decline. It didn’t. Since then, I’ve learned how to divine home values by looking at public records and applying the methodology used by professional appraisers. I’ll show you how to do your own public-records search, and explain why online home-valuation sites may or may not get the home-value number right.

(See also: Tips for Avoiding a Foreclosure Prevention or Loan Modification Scam.)

Here are some ways of judging value:

  • tax value (which may be based on the price paid for the house 15 years ago, the home’s replacement cost, or other factors)
  • market value based on the sales comparable approach (that is comparing your house to homes that are comparable to yours in geography and construction, and then adding or subtracting value based on features and amenities, similar to the approach taken in HGTV’s My House is Worth What? and Mary's point #10 in Real Estate Appraisals)
  • replacement cost less depreciation plus land value
  • combination of all of the above

Information can be gleaned from the following sources:

  • public records
  • aggregated public records mixed with mapping technology
  • site inspections combined with general knowledge of construction costs and market conditions

Public Records

Public records are a goldmine of free information regarding tax values of individual homes as well as sales histories, privacy concerns notwithstanding. Your city or county will typically house these records, which are often accessible and searchable online. The most recent sales price, year of construction, square footage, number of bathrooms and bedrooms, zoning information, and more are often contained in these records. (Call your local government or do a search on real property or tax administration to find the records.)

Is there a political component to tax values? I think so. Higher home values can mean higher property taxes (depending on assessment rates) and more money in the public treasury. Except when, perhaps, there is a public disincentive to increasing property values, say in a neighborhood (like mine) where the state or municipality intends to acquire properties (or has in the past) by exercising eminent domain. For example, when I reported over $40,000 in home improvements made by a licensed general contractor to my home (such as bringing the bathroom up to new building code, replacing vinyl flooring with ceramic tile, and ripping out pressed wood and installing Maple cabinets), the tax assessor increased its value by $0. 

I haven’t complained, of course, and plan to resist asking for a revaluation until I put my house on the market; for now, there is a 60+% differential between my home’s tax-assessed value and Zillow’s.

Real (Certified) Appraisals

Real appraisals are performed by licensed or certified appraisers, regulated at the state level. To get an idea of the information they gather and analyze (either through full-home inspections or drive-by inspections of single-family homes), check out the Uniform Residential Appraisal Report.

Appraisers should have an understanding of housing market trends, including sales activity relating to specific neighborhoods. Knowing the value of certain features and amenities (number of bedrooms and full baths, in-ground pools, decks, patios, 2-car garages) is especially useful for calculating replacement costs and figuring out adjustments based on differences for sales comparables, which is often the focus of the appraisal.

Sales Comparables

Appraisers find residential properties that are comparable to your house (the subject property). In a large suburban development, that’s usually pretty easy because several houses of similar size and construction type will often sell each year; in a rural area, it’s trickier because fewer houses may sell and those that do sell will often differ greatly in size and amenities.

Next the appraiser compares your house’s features (age, condition, number of bedrooms, etc.) to the comps and calculates an adjusted sales price for each of the comps; from that information, he/she can develop a market value.

Appraisers may also consider the replacement cost of the home or use the income approach (estimated monthly rent X GRM/gross rent multiplier) to develop market values.

Online Home-Valuation Sites

Sites such as Zillow, Eppraisal, and Real Estate ABC aggregate public records and, with the help of mapping technology, develop a home value (or rather a range of values) based on recent sale prices of nearby homes (but not necessarily ones that are comparable to yours). However, Real Estate ABC has an interactive feature that allows site users to select and deselect sales comparables (comps). In my case, I could keep the comps that were in my neighborhood of single-family homes and de-select the large homes with significant acreage and the condos less than a mile away. This approach, though simplified, is most similar to methods used in a real appraisal. 

Appraiser Bullying or Isn't a Home Worth Whatever Someone Will Pay?

When I was in the market for the house I own now, in the 1990s, a licensed real estate agent explained the appraisal process to me like this: the appraiser starts figuring the value of the house but stops when he/she gets to the contract (sales) price. I found her comments disturbing; technically, she was wrong but she did reveal to me some gaps in the real estate sales-lending system. According to the Appraisal Standards Board, potential clients have made requests that are contrary to industry standards for real estate appraisal, such as: 

  • "We need comps for (property description) that will support a loan of $_____; can you provide them?"
  • "Approximate (or Minimum) value needed: ______________."
  • "If this property will not appraise for at least __________, stop and call us immediately."

Making the appraisal = the sales price or loan amount is not a good idea, as the State of New York, First American, and Washington Mutual confirmed last year.

In regard to the pending nightmare awhile back, my husband and I found ourselves selling a house that we had owned for less than 6 months due to a corporate relocation; we had bought the house at a moderate bargain because it had been on the market a while and sat a couple of doors down from a foreclosed home owned by a bank. But when our first pick for a real estate agent included our house in her sales comps (for a market analysis not an appraisal), she saw a downward market trend and panicked. We quickly found a more enthusiastic and clear-thinking agent, who helped us to sell the home at a reasonable price within 30 days. Housing prices can rise and fall but one transaction doesn't make a trend.

Though my quick-and-dirty methods aren't perfect, they should give you a guess at your home's value until you are ready to get a certified appraisal

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Mary Webber's picture

Great article, Julie!

Guest's picture

Additionally, the best and closet estimate you can get is from a Realtor. A GOOD Realtor has the knowledge of the local market, the houses on the market and their specific condition such as upgrades, locations, days on market, seller motivation, when the house came on market; they know about supply and demand, what the buyers want now, ...etc.

They know about what houses are sold for what value and why.

They don't just take the numbers and crunch them, they actually know about the houses!

They are the best source and they will come out and do a market analysis for you for FREE. Great way to find the best estimate for your house.

Oh, you should get some recommendations and find great Realtors.

Fix My Personal Finance

Guest's picture

I'm not a fan of the sales comparison or realtor CMA...heck, I am a realtor. I love discounted cash flow analysis (income approach) to gauge investment value, but the reality is that for single-family residences (SFR) this just doesn't cut it.

Home buyers may think of themselves as investors, but they typically pay premiums to investment value. Most SFR equivalent cash flows are insufficient to justify market values.

Similarly, the cost approach is not quite realistic for SFR either. This is mainly used for new and unique properties, such as sports complexes, marinas, etc., and for good reason. The older the structure on the property the more difficult this approach becomes.

When it comes down to it the investment axiom of "an asset's value is whatever someone is willing to pay for it," holds true. You can derive whatever figure you want through whatever method you want, but when you list the property a prospective buyer only cares about relative advantage within his localized area of interest...if he can find the same property qualities next door for less money, he'll take that over a cleverly contrived asking price.

You made a great point, though, in that an anomalous occurance of a panicked neighbor selling for way below market does not necessarily mean the market, itself, has suddenly crashed.

Guest's picture

I have never heard the word 'divine' used in your context.

Julie Rains's picture

After much debate, I chose "Divine" -- "to guess"; "to discover by intuition or insight" rather than define, which seems more precise...I am not telling everyone how to get an exact value but how to make an educated guess.

Are houses worth what people are willing to pay? Hmm...maybe yes, maybe no -- that certainly is the debate of the moment. As a consumer advocate and not a sales person, I recommend using more than one source of information to discern, ur, divine value.

I looked at new condos near my house that are priced above my house "value" -- after doing several upgrades/remodels, I was shocked at the cheapo materials or wondered then if I have become a materials snob now that I have ceramic tile rather than 30-year-old vinyl flooring. But a construction friend independently confirmed that cheap materials were used -- so it doesn't hurt to look at the cost of construction.

Thanks for your insights and comments!

Guest's picture

I was thinking about selling my coop so it’s a bit different from pricing a house. I used some “Voodoo” math to come up with a price. I started with the asking and then selling price of 2 units that recently sold in my building. Then added and subtracted based on differences like my bathroom update with Jacuzzi, their extra office space, me facing the quiet courtyard while they faced the street to come up with figure. All good but whatever the value, I decided not to sell. Although I did the Happy Dance, what’s difference does it make if I can’t afford to buy a comparable property.
Ahhh Real Estate.

Guest's picture

In recent years, the depth of delusion and corruption in the ranks of so-called real estate professionals is breathtaking. Add to it, the ranks of real estate appraisers, and you have the making of a real scam. I'm not saying all real estate agents and appraisers were corrupt, but most were caught up in the false housing spike, the delusion. Now, all you hear from these folks is that the market has bottomed - 'now is the time to buy'.

In short, take what say with a sack of salt.

Real Estate prices are set at the edges. Obviously, only a small percentage of all homes are on the market at one time. The sale of one distressed property doesn't necessarily set the price, but it does have an effect. The presence of many distressed properties, foreclosures, short sales, on the market, or due to be placed on the market, definitely has a huge effect on the market. The prices have to go down.

In California, a significant percentage of all home sales are now in the distressed category.

I write this as a prospective buyer. But I will be waiting. This storm won't be over for another couple of years at the earliest. All you have to look at are the number of mortgages that are due to reset in '09 & '10. The number of homeowners who owe more on their homes than they're worth will explode to the upside. Many will walk.

Guest's picture

Brett Shaw from Cyberhomes:

Another useful site that can help you determine what your home is worth is Cyberhomes.com. We not only provide an estimate (based on recent sales, tax records, and a wide range of criteria), but we also provide a range of what your home may be worth. Many people say that it is hard for a computer to generate an accurate value, so we need your help.

In the change estimate section, you can enter in remodels, renovations, etc. and edit the home's facts. No one knows better than you. You can also adjust for conditions of the home, view, and even the local real estate market if known. Here's a hint, it's down right now.

Apart from that, there is a ton of local information available such as school info and crime rates. Just type in an address or zip code and take a look around.

Guest's picture

Because of the market being different in so many areas, now is a better time than ever to work with a real estate agent to find home value.

Its tough to rely on automatic home value sites because they are so reliant on data. If they don't have a lot of data on a region or property, they can't accurately determine a home value.

Agents have all the data on local housing markets and can provide CMAs that often are within 10% of home appraisals.

Guest's picture

great article! I am looking to buy a home but i need to get my credit cards consolidated first. Can you reccomend any other blogs with real estate info? Im a first time buyer doing research. thanks again!

Guest's picture

i found this article to be useful with accurate information..do u have any articles on Real Estate in Costa Rica or other tropical areas?

Julie Rains's picture

Myscha wrote a nice real estate article on Costa Rica. There are several articles on real estate here at WB but let us know what topic you are wondering about.