Many home sellers are confused by the terms market value and assessed value and are surprised to find out the numbers are not usually the same. Oftentimes they’re not even close.
Market value is how much your home is currently worth on the market. Tax assessed values are used only by the property tax authority of your county or municipality in order to bill you properly. Local governments use varying techniques to calculate the value of a house for the purpose of property taxes. Some simply take the estimated fair market value and then use that number as your home’s assessed value. Other local governments assess taxes on only a percentage of the value of the property.
There is no exact formula for calculating fair market value for a house, but there are methods you can use to come up with an educated estimate.
First, you want to research the selling price of comparable properties in your area. You’ve probably heard that location is important in real estate, so only compare houses that are similar to yours and in your neighborhood.
In a perfect world, if you see three identical houses in your neighborhood recently sold for $160,000, $168,000 and $171,000, you might assume a fourth identical house would sell in this same price range – somewhere between $160,000 and $171,000. However, that’s not what always happens in real life.
More likely, and especially in the Washington, DC metro area where there’s a great diversity of architecture, you’ll find houses even within one neighborhood sell for a much wider variety of prices. Some houses are larger, others are smaller. Some are older and in not a very well maintained condition, while others are newer and more updated. Some homes need massive repairs, others are in model home condition.
To get the most accurate comparison, what you want to do is find houses that
- Have sold within the past six months.
- Were built within about five years of yours.
- Are approximately the same square footage as yours, give or take 300 square feet.
Now determine the cost per square foot for each of these comparison houses by dividing its sale price by the number of square feet it is. Average those numbers together to get the average cost per square foot of your comparable houses.
To figure out a reasonable market value for your house, then multiply the square footage of your house with that average cost per square foot of the comps.
This comparable sales approach is what’s usually used by real estate agents to calculate the proper asking price for a property.
Another method is to calculate the cost of replacing your home. To use this method, you need to estimate the value of the land. To calculate land value, you may need to research the price of empty lots in your neighborhood and figuring out the price per square foot of the average lot. Or you might use the land value calculation provided by your local tax authority. They usually break out the value of the land vs the value of the structure in their property assessments. In the Washington, DC metro area, land can easily be worth more than the actual house.
Now add to the cost of land, the amount it would cost to rebuild your home, including any fixtures and improvements you made recently. The replacement value method is typically only useful when there aren’t any similar homes in your area and you can’t use comparable sale prices.
The third method is to calculate the income your home generates. However, this income-based assessment method is primarily used for rental properties. Unless you are pricing a property used exclusively as a rental property, you should only use this method in combination with another method more suited to residential properties.
By far, the most accurate way to determine the market value of your house is to use actual comparable sales. But figuring out current market value is never an exact science. So what you shoot for is a range of price to reasonably represent the value of your house.
Keep in mind, if your house needs significant repairs or updates, your sales price will obviously need to reflect that condition. Express Homebuyers buys houses no matter what condition they’re in or how much work they need. Call (877) 804-5252 today to get your fair cash offer.