A Beginner's Guide to Knowing The Value of Your House
A house mortgage is the biggest investment in most people’s lives. When thinking about buying a home, one of the goals is to create house equity. Over time, you hope to use the equity to build wealth so you will be happy with your purchase as both a living space and as an investment. When selling your home, you want to be sure to get the highest value possible. To determine the price you want to sell your home for, it is useful to think like a buyer. Use for your reference a home buying guide, as you determine the value of your house.
The value of your house comes from several factors that include comparables, house quality, size, bathrooms, bedrooms, location, schools, crime rate, and amenities.
Here are the steps to help determine the value of your house.
Finding Comps for the Value of Your House
Comparables are homes that are very similar to your home. These are commonly called “comps.” The comps are the same size and in the same neighborhood. Comps are very important because they are the amounts used to set the value of your home for mortgage financing. Using an online service such as Zillow can help you find comps.
Here are the steps to find comps:
Get the data about the home you wish to value and then use it to compare that home to others. You need to know the number of bedrooms, bathrooms, the square footage, the year built, and the address of the home. The closing documents from the purchase of a home will show the square footage of the home.
The square footage will also be on the building plans and in the county records used for property tax assessments. If you cannot find this information in the documents or the county records, you can use a long, tape measure to measure all the rooms and then add up the square footage of the home by hand.
The perfect comp would be a home of the identical style with the same number of bedrooms and bathrooms, with the same amount of square footage, built at the same time, and in the same neighborhood. These nearly identical comps are possible to find in planned communities that have homes, which have repeated home designs built at the same time. If you cannot find an exact match, then get as close to the design as is possible.
To value a home properly, lenders like to see more than one comp and usually rely on three comps as a minimum. Choose homes that are as similar as possible and of the same quality. It is also important to show that the range of the price for the comps is a narrow range. One comp in a group that is a much higher price or a much lower price than the others is an outlier and not useful information. Lenders typically throw out the highest-priced comp and rely only on the lower-priced ones.
For your comps to be the most useful in determining the value of your home, compare the home size, year built, location, quality, and the number of bedrooms and bathrooms.
House Quality Affects the Value of Your House
A “fixer-upper” home of the same size and with the same number of bedrooms and bathrooms is not worth as much as an equivalent home across the street that is in perfect condition. When thinking about the value of your home, be realistic.
Try to avoid being emotional and evaluate the home’s condition fairly. If the place is a mess, clean it up. To be certain the home’s systems are working and the home is in the best condition possible for the highest valuation, pay for a professional home inspection. Then, hire professional contractors and workers to make the repairs discovered to be necessary through the home inspection process.
If you want to sell your house for a strong price, consider having a full professional home inspection done, then make all the repairs, and add the security of a home warranty. A home warranty gives a potential buyer the confidence that if they buy the home they will have insurance to cover any major home systems and appliances. With a home warranty in place, a buyer will not be hit by an unexpected repair bill that they have to pay out of their pocket, right after they buy a home.
How Size Affects the Value of Your House, Lot Size Not as Much
The size of the home, and the size of the lot it is built on, will both influence the value of the property. However, Zacks reports that a small difference in the lot size will have little impact on the price of a home, whereas, a home with more livable space, in terms of square footage, even if on a smaller lot, will have more value.
For example, a 3,000 square foot home on a lot size of 0.43 acre will likely not be worth much less if the lot size is smaller with only 0.39 acre. However, with all other factors being equal, a 3,500 square foot home on the smaller lot size will usually be worth more than a smaller home on a larger lot.
Another issue is the quality of the landscaping on the exterior lot. If the lot size is larger and it is in poor condition, this can negatively influence the value of your house. In areas where water supplies have challenges, having a big water bill to take care of the lawn does not add value either.
Bathrooms and the Value of Your House
After remodeling a kitchen, adding a bathroom is another thing you can do to improve the resale value of your home if it is otherwise in a decent condition. The industry association for remodeling reports that a medium-priced bathroom addition might run about $47,000 and the resale value of the home might go up, on average, by up to 60% of that investment or $28,000.
These numbers mean that you can enjoy the use of an extra bathroom while owning a home and get back more than half the investment for the construction when you sell the home.
Bedrooms and the Value of Your House
City-Data has a discussion on its real estate forum about which house would appraise higher when comparing two houses with the same square footage. One is a three-bedroom home and the other is has four bedrooms. For the most part, a home with three or four bedrooms sells for a similar price if the square footage of the homes is the same. It becomes more of a preference of the buyer and how many children they may have. Having an extra bedroom for more kids or as a guest room is helpful for some. Others may prefer more living room space instead of the extra bedroom.
This is not the same as the comparison between one, two, and three-bedroom homes. A one-bedroom home is at a severe disadvantage over a home with two bedrooms or more. The sweet spot is three bedrooms. To add another bedroom, as a master suite renovation, costs about $124,000 according to Remodeling Magazine. In terms of real value, this project would only recoup about 57% of that amount or around $70,000.
The Value of Your House Depends on Its Location
What do you think is the value of a two-bedroom home that has two bathrooms and 1,500 square feet in Las Vegas? The median home value in Las Vegas is $184,900 according to Areavibes. What if I told you that this house is on a 0.4-acre lot on Las Vegas Blvd. in the crime-ridden part of downtown Las Vegas, how much do you think it might be worth? It is in terrible condition and located in a very bad neighborhood for crimes. Yet, it is on one of the most valued streets in Las Vegas, so this horrible little house and its lot are for sale for $3,190,000!
An acre of desert land outside of Las Vegas might sell for $5,000. An acre of the same type of desert land in terms of quality that is in Las Vegas along the world-famous strip might sell for $5 million. The only difference is the location. This is an example of where the adage of “location, location, location” comes from in real estate investing.
One way to improve the value of the home, and its lot, is by achieving a zoning change from a residential property to a commercially-zoned property.
How Schools Impact the Value of Your House
Even if you do not have children, it is a wise idea to buy a home in a neighborhood that has great schools. Homebuyers with children are willing to pay a premium to live in a neighborhood with quality schools. When buying a home, investigate the schools that are nearby. When selling a home, if there are quality schools, which are close by, be sure to let potential buyers know about the schools.
How Crime Can Lower the Value of Your House
If you are buying a house, you want to use a system such as Areavibes to check the crime rate for any area that you are considering. If you own a house, check the crime rate to determine if it will influence the value of your house when it comes to selling it. There is some correlation between areas with high crime rates and lower overall home value. However, these crime rankings are very neighborhood specific.
A city like Las Vegas has an overall crime rate of the lowest rating possible with an “F” ranking. However, a suburb of Las Vegas, called Summerlin, has an “A” ranking for a low crime rate. Nevertheless, houses in Summerlin are more desirable when they have sophisticated security and home alarm systems.
Find Out and Grow the Value of Your House - with Accury
How Amenities Improve the Value of Your House
Amenities are the things you find in the neighborhood and within a driving distance from home. Amenities include public parks, shopping areas, restaurants, nightlife, cultural exhibits, museums, theaters, community events, festivals, things to do, health clubs, spas, sports centers, nature parks, walking trails, and more.
There are a couple of ways to evaluate a neighborhood for its amenities. One is to look up its ranking on Areavibes and the other way is to search for things to do, on a system like TripAdvisor. If you live in the home and are trying to sell it, consider making a video of the amenities by driving around the neighborhood, and then make an edit of the video footage that is fun to watch, so you can share with potential buyers. This helps a buyer imagine what it is like to live in your neighborhood.
Demographics and the Value of Your House
To check out the demographics of a neighborhood you can look up many details about the makeup of the people in different neighborhoods on City-Data and Neighborhoodscout.
You can also see the median age, gender-mix, nationality mix, major industries that offer employment, and the popular occupations. You can learn about the median income per person and household. There is an interesting ranking of the neighborhoods in each city. Check the list of the top ten neighborhoods in each city that have the highest median home value. If you live in a city, you want your home to be in one of those neighborhoods for sure.
How to Increase the Value of Your House
There is a technique called “staging” that is used by those wanting to sell their home for the highest price possible. Staging includes making the house immaculately clean, possibly repainting, improving landscaping and curb appeal, getting rid of clutter, removing most of the furniture, and using only the nicest pieces (or perhaps renting new furniture) to make the home look as much as possible as a newly-built custom home model that is for sale.
Renovation is also a possible way to increase the value of your home. Some renovations are more likely to improve the home’s resale value. No renovation projects recoup the full investment when the home sells. However, some remodeling projects recoup a large portion of the investment.
Here are the best renovation projects in 2020 that increase home value:
1.Stone Veneer: The best renovation project for 2020 that achieves a big portion of the investment when the house sells, is applying manufactured stone veneer to the front exterior of the home. The average cost of this work is $9,357 and the average increase in resale value is $8,943, returning about 95.6% of the construction cost. Adding a stone veneer to a house increases its curb appeal.
2.Garage Door: Changing out the garage door to a brand-new automatic one is a wise option. It does not cost as much as other renovation projects, with the average being around $3,695 and returns $3,491, which is 94.5% of the investment, in terms of increased resale value.
3.Medium Kitchen Remodel: The midrange for a kitchen remodel is $23,452 and returns $18,206, which is 77.6% of the investment, in terms of increased resale value.
4.Fiber-Cement Siding: Replacing external siding, with new fiber-cement siding, costs about $17,008. This returns an average of $13,195 in higher resale value. The return is about 77.6% of the investment.
5.Vinyl Siding: Replacing external siding, with new vinyl siding, costs less than fiber-cement siding at an average of about $14,359. This returns an average of $10,731 in higher resale value. The return is about 74.7% of the investment.
6.Vinyl Window Replacement: Window replacement is still on the top-ten list, especially for energy-efficient, double-pane, vinyl windows. The average project cost is $17,641. This returns an average of $12,761 in higher resale value. The return is about 72.3% of the investment.
7.Wood Deck: Adding a wood deck costs about $14,360. This returns an average of $10,355 in higher resale value. The return is about 72.1% of the investment.
8.Wood Window Replacement: Wood window replacement cost is around $21,495. This returns an average of $14,804 in higher resale value. The return is about 68.9% of the investment.
9.Steel Entry Door: Replacing an entry door with a new steel one costs about $1,881 and returns about $1,294, which is about 68.8% of the investment.
10.Composite Deck: Adding a deck made from composite materials costs about $19,856. This returns an average of $13,257 in higher resale value. The return is about 66.8% of the investment.
The next things on this list are roofing replacement, a bath remodel, a master suite addition, a bathroom addition, and building a grand entrance. If you want to do more than one project, you may consider choosing the one that improves resale value more than the other one does.
Conclusion
After understanding a bit more about all the different factors that influence home value, I hope you have a better understanding and can figure out the value of your home. If you need help, you can always reach out to a professional. Ask a REALTOR® who works in your city, and is familiar with your neighborhood, to find three comps for you and give you an estimate of your home’s value. Real estate agents love to do this because they need to stay aware of the values, and they want you to become a client.