Ultimately, a home is worth what is paid for it. Everything else is really an estimate of value. For instance, in a hot seller's market, when demand for housing is high but the inventory of available homes for sale is low, homes can sell above and beyond the asking price as buyers bid up the price. The fair market value, or worth, is established when "a meeting of the minds" takes place between the buyer and the seller.
Comparing the Worth of Your Home to the Market
A comparative market analysis and an appraisal are the two most common and reliable ways to determine a home's value. Your real estate agent can provide a comparative market analysis, an informal estimate of value based on the recent selling price of similar neighborhood properties. To help prevent you from overpaying, review comparable homes that have sold within the past year along with the listing, or asking, price on current homes for sale.
An appraisal of a home can be provided by a certified appraiser. After visiting the home to check such things as the number of rooms, improvements, size and square footage, construction quality, and the overall condition of the home and neighborhood, the appraiser then reviews recent comparable sales to determine the estimated value of the home.
Lenders typically require an appraisal, which run between $300 and $500, before they will approve a mortgage loan. In doing so, the lender is protected by ensuring the home is worth the money you want to borrow.
You also can check recent home sales in public records, through private firms, and on the Internet to help you determine a home's potential worth just be aware that some online estimates are not accurate.
The Difference between List Price and Sales Price
The list price is a seller's advertised price, or asking price, for a home. This price is a rough estimate of what the seller wants to complete a home sale and can be priced high, low (which does not happen often), or very close to what they hope to receive. One effective method to determine if the list price is a fair one is to look at the sales prices of similar homes that have recently sold in the area.
The sales price is the actual amount a home sells for.
Appraised Value versus Market Value
The appraised value of a home is determined by a certified appraiser who is trained to provide the estimated value of a home. This value is based on comparable sales, the condition of the property, and several other factors. For more information check out our Home Appraisal Guide.
Market value is the price the house will bring at a given point in time, once the buyer and seller mutually agree upon the price.