How to determine property value and why it matters
Quick insights
- Property value refers to the monetary worth of a piece of real estate, such as a house, apartment, or land. It is affected by a variety of factors like location, size and property condition as well as comparable sales in the area.
- Assessed, appraised and market values are all different types of property value that serve different purposes, from tax calculations to determining sale prices.
- Chase offers a helpful tool to calculate your own property value, which can be valuable when you’re buying or selling a home (or simply want to know its worth).
Real estate has long been considered a solid investment for good reason: Property values have historically climbed steadily over time.
But what is value in real estate exactly, and how much can it really fluctuate? Perhaps most importantly, what causes it to fluctuate, and why does that matter to you as a homebuyer or seller? Let’s take a closer look.
What is property value?
Property value is the amount a property is worth at any given point in time (subject to market conditions), combined with how much a seller is willing to accept and how much a buyer is willing to pay.
It’s an ever-changing value due to a blend of factors, typically with an upward long-term trajectory. Knowing your home’s value gives insight into what you could gain financially from its sale and may help you form a strategy moving forward.
Differences between types of property values
As you’re learning more about your property’s value, you may hear terms like “assessed value,” “appraised value,” and “market value.” While all three of these terms might seem interchangeable, they have distinct meanings.
- Assessed value: The assessed value is the dollar amount assigned to your property by your local government’s tax assessor and is used for calculating property taxes. An assessor determines this value by looking at factors like recent comparable sales, property condition and features such as square footage and the number of bedrooms.
- Appraised value: When you apply for a home loan, whether it’s for a new mortgage or a refinance, your lender will typically request an appraisal. This is to make sure the loan amount does not exceed the property’s market value, in compliance with federal lending regulations.
- Market value: Market value is the price a property is most likely to sell for in a competitive and open market. It’s influenced by supply and demand, the home’s condition, location and recent sales of similar properties in the area (also known as comps).
How to find the value of a property
Whether you’re a homebuyer, seller or owner, being able to determine your own property value is important.
Chase’s home value estimator is one tool you can use. Simply plug the street address into the tool, and it will generate an estimate based on the millions of home records in the Chase database.
It’s also wise to pair your results with those from professional realtors or appraisers for the most accurate picture. Mixing different evaluation methods will give you a more thorough estimate. Here are some of the most common.
Hire an appraiser
A professional appraiser conducts an in-depth evaluation of your property, considering factors like size, condition, location and recent sales in the area. This method is highly accurate and often required for mortgage approvals.
Have a Realtor conduct a CMA
Realtors can perform a comparative market analysis (CMA), which compares your property to similar homes recently sold in the area. This method provides a market-driven estimate tailored to your neighborhood.
Gather comps
You can also research comparable properties (comps) in your area. Look for homes with similar size, features and location to gauge your property’s value. Combining comps with other methods ensures a well-rounded estimate.
What makes a property value increase or decrease?
Many factors affect property value, including some that may encourage a property value increase and some that might momentarily cause a decrease in value. Let’s take a look at some of these variables.
Supply and demand
Supply and demand is an economic concept most people are generally familiar with. It helps drive the value of basically everything in our society, including homes and properties.
If there’s a small supply of homes and high demand from buyers, the value of a property typically goes up. If there’s a large supply of homes and low demand from buyers, then the property value of a home (if sold at that point in time) might fall lower.
Location
They say real estate is all about three things: location, location, location. If you live in a popular or up-and-coming area, then you may see an increase in your property value. Let’s say the local crime and unemployment rates have gone down, or you live in a highly funded school district—this all affects your property’s value, maybe even more than home size.
Size and quality
Because of the internet’s consumer-driven climate, people are more aware of what makes a quality product. The same goes for homeowners and builders. The desire for high-quality construction promotes an increase in property value. A home containing a marble staircase may have a higher property value than one without because it costs more to build.
Upgrades
Making upgrades to your home is a popular way to add value, though of course, not all updates yield the same results. The renovations that yield the highest returns when it comes to property value include energy-efficient or green modifications (such as replacing doors or windows), kitchen renovations and adding more living space to the property (such as converting a basement into a living area). Other renovations, like adding wallpaper, wall-to-wall carpeting or a swimming pool, historically don’t do as much to increase overall property value.
Comparable homes
Look at the homes around you to get an idea of what they’ve sold for in recent months. If the houses around you have sold for lower prices, your home may sell for less, too, even if it might be worth more in a more competitive market.
Property easements and home value
An easement gives someone the right to access or use part of a property that’s owned by someone else. That means if you purchase a home with an easement, another party may still have a right to your property.
The potential complications of an easement might decrease how much people are willing to pay for it, affecting the home’s value. As either the buyer or seller of a property, it may be worth noting whether there’s an easement on the property.
Common mistakes when determining property value
Here are some of the most common mistakes people make when attempting to determine property value:
- Relying exclusively on online tools: While they offer a quick estimate, online tools can’t see the unique features of your home or understand the nuances of your neighborhood.
- Ignoring current local market trends: Are houses in your area selling quickly and above the asking price, or are they sitting on the market for months? This information is vital and provides a much more accurate picture than a national average.
- Misjudging renovations: Be careful not to misjudge the value of renovations. You might have spent a lot on a custom kitchen, but you may not recoup the full cost at resale. Similarly, if you’re buying a fixer-upper, underestimating repair costs can lead you to overvalue the property.
In summary
More than just a number on paper, property value is a story of market trends, location and all the other unique features that make your home stand out. Whether you’re buying, selling or simply staying informed, understanding your property value empowers you to make smarter financial decisions.
Remember, your home is where you live, but it’s also one of your most valuable assets. So keep an eye on its worth to make it work for you.
