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    Appraisal, Market Analysis, Zestimate – Here’s To Understanding Your Home’s Value

    Your home value is determined by the market, that is, what a buyer will pay for it. To estimate the value of your home, check out these approaches. 

    Appraisal- An appraisal is an opinion of value, or a judgement based on experience. It is needed when real property is sold or refinanced. A licensed appraiser will take into account the demand for your property, the utility or use of your property, the scarcity (are similar properties available nearby), and transferability (can it be sold).

    Pros: Appraisers are licensed professionals that have been trained to determine the value. They consider many factors that influence value such as the physical (good or bad condition), social (is it close to amenities?), economic (is it a declining area?), governmental (taxes), directional growth (are they building new homes around it), and location.

    Cons: An appraisal is the most expensive and time consuming of the options outlined.

    The Difference in Appraisals

    A resale house is based on the Market Data approach, also known as a comparative analysis. It is often regarded as the most reliable gauge of the market. The subject property is compared to recent sales of like properties in the area, based on the principle of substitution. Homes that are currently for sale are considered the high end, and homes that have sold are considered the low end regarding value. The main factors for adjustment between the subject house and the other homes are date of sale (typically within the last 6 months), location and proximity to each other, physical features (pool, garage, fireplace), and terms of sale (cash, foreclosure),

    A new house, custom home, or special use land is based on the Cost Approach, also known as a summation. This is an estimate of value based on the land, property’s rebuild or replacement cost, and minus depreciation.

    The Income Approach is used when dealing with commercial property or investors. It is based on the amount of net income the property will produce over the remainder of its economic life. This approach assumes that income made from the property determines the value.

    2. Market Analysis- A market analysis is very similar to an appraisal. It is based on the most similar properties that have recently sold near the subject property, with adjustments to determine the value. This can be done using the MLS or records from the county recorder’s office. It is most commonly used by real estate agents.

    Pros: It is quick and can be obtained free from a real estate agent. They consider many factors that influence value such as the physical, social, economic, governmental, directional growth, and location. It can be done without a home visit, however you will get a more accurate valuation with a home visit.

    Cons: Most real estate agents are not licensed appraisers and their report will not be as in depth as an appraisal. A Market Analysis will not be used by a mortgage company to purchase a house.

    3. Zestimate (or any online calculation)- The home value is estimated using a proprietary formula. This is a starting point in determining a home’s value.

    Pros: Quick and free to check online.

    Cons: It uses public data that can be inaccurate and it does not compensate for finishes inside a home. Most sites in the Denver Metro area are within 15% high or low of the true market value.

    Recommended uses of these valuation tools. 

    Anytime a financial decision is being made an Appraisal or Market Analysis is recommended. An appraisal will be required when you are financing a home to purchase or refinancing. If you are making an offer on a house or listing your home for sale an in-depth Market Analysis is recommended. Online estimates should be used as a starting point when you start planning a financial decision.

    To get a Market Analysis for your home click here. 

    If you have any real estate questions, reach out to me here.

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