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What your home is (and isn't) worth


There are a variety of ways to estimate what your home might sell for in a hot market

If you’re thinking of selling your home, you may be fantasizing about the profit you’ll reap from the sale or calculating exactly how much you’ll need to pay off your current mortgage and have enough left over for a down payment on the next house.

Before your fantasies run amok you need to realize that, while you can estimate the value of your home in a variety of ways, the true value is only what a buyer will pay for it. That said, there are several ways to get a strong idea of how much a buyer will pay for the property in current market conditions.

Many homeowners find it confusing that there are various numbers floating around that indicate their home value. Here are a few terms you should be familiar with, according to the National Association of Realtors:

Property tax assessment

Each jurisdiction uses a formula to establish home values for a tax assessment, but this price rarely correlates with the market value of your home. Your tax assessment can be higher or lower than the current market value.

Homeowners insurance value

Insurance estimates are based on the cost of replacing your home without the land, so this value is skewed compared to market value.

Mortgage balance

Your mortgage balance simply reflects your home loan. The difference between your loan payoff and the market value of your home is your equity.

Neighbor’s home value

Even if your neighbor’s home is similar to yours, it’s not likely to be identical. A Realtor can help you evaluate your home’s worth in the context of other nearby properties.

Purchase price

Regardless of how long ago you purchased your property, the value can have gone up or down.

Desired value

You can always try to put your home on the market for your desired price, but if you’ve over- or under-priced it, you’re shortchanging yourself because you’re either selling too low or your house could sit on the market and eventually sell for less than if you priced it correctly in the beginning.

Comparative Market Analysis

A Realtor can do a comparative market analysis with recent market data to help you estimate your home value. (See box). When you sell your home, an appraisal will be required by the buyers’ lender, so keep in mind that your home has to appraise for the selling price or, depending on how your contract is written, you’ll have to renegotiate the sale or the buyers will need to come up with extra cash.

While it may be tempting to list your home with the agent who tells you it can sell at the highest price, a smarter way to sell your home is to price it as accurately as possible from the beginning. Studies show that an overpriced home that lingers on the market will end up selling for less than the estimated correct price.