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

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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.