What is home value and how do you determine it?

Your home's value isn't fixed. It evolves with market conditions, property improvements, and time. While home values have historically climbed over the long term, short-term market shifts can cause temporary dips, and strategic upgrades and consistent mortgage payments can build your equity. Understanding your home's fair market value is essential information for major life decisions like considering a renovation, exploring a home equity line of credit, or planning to downsize in retirement.

In this guide, we'll break down the factors that influence your home's value, show you how to estimate it accurately, and share proven strategies to increase what your property is worth.

Key takeaways:

• Your home’s market value reflects what a willing buyer would realistically pay today, which is different from your original purchase price or your local tax assessment.
• The current value of your home impacts the amount of equity you can borrow against and how much profit you could make by selling.
• You can estimate your home’s value using free online tools and neighborhood comps or get a more accurate figure from a formal appraisal. 

What is home value?

Your home value is the estimated amount that your home is worth based on what a willing buyer might realistically pay for your property in the current real estate market.

This number is not the same as your original purchase price or its assessed value for taxes. Your purchase price is simply the exact amount you paid when you bought the property, which doesn't reflect today’s market. Meanwhile, the assessed value is a specific figure calculated by your local county or municipal government strictly for the purpose of levying annual property taxes.

Suppose you bought your house five years ago for $250,000. That is your purchase price. Today, your local tax assessor values the home at $275,000 for tax purposes. However, because your neighborhood has become incredibly popular, a prospective buyer today would be willing to pay $350,000 for it. That $350,000 is your true market value. Understanding assessed vs. market value helps you manage both your future sales expectations and your current tax budget.

Types of home value estimates

When navigating the real estate landscape, you might encounter a few different terms regarding the value of home estimations. Here is a breakdown of what each one means:

• Market value: This is the most probable price your home will bring in a competitive, open market. It is most often used by real estate agents, buyers, and sellers to set a listing price and negotiate offers.
• Fair market value: Like market value, this represents the price a property would sell for when both the buyer and seller have reasonable knowledge of the facts, and neither is under any pressure to act quickly. This figure is typically used by the IRS, insurance companies, and legal professionals for tax and estate purposes.
• Appraised value: This is a licensed professional’s estimate of what the property is worth after conducting a formal appraisal. This evaluation is ordered by the lender to confirm that the home is worth the amount of money being borrowed.
• Assessed value: This is a valuation of your home assigned by a local government tax assessor to calculate how much you owe for property taxes.

Why home value matters

For many owners, your mortgage can be your biggest financial commitment, and your home can be your biggest financial asset. Here are some common situations where it’s important to understand the current value of your home:

• Selling your house. Knowing your house value can help you determine the best price to list the property. Pricing it correctly ensures you do not leave money on the table while still attracting eager buyers.
• Refinancing your mortgage. Your home value can also be a valuable indicator when refinancing¹ your mortgage. If you’re opting for a cash-out refinance, your home value impacts how much money you can take out. A favorable loan-to-value ratio (LTV) will determine your refinance approval, your loan terms, and whether you secure the lowest possible interest rates.
• Taking out a home equity loan or a HELOC. When you apply for a home equity loan or a home equity line of credit (HELOC), you borrow against your equity. The amount of equity you have is calculated by taking the current value of the home and subtracting what you still owe on it. This directly impacts how much you’re able to borrow. You can speak with a Rocket Mortgage Home Loan Expert about taking out a Home Equity Loan².
• Assessing your property taxes. The amount you pay in property taxes is determined by the assessed value of your house and is performed by a professional assessor. Understanding the tax-assessed value of your property can help you appeal your property taxes if you believe they’re too high.

Let’s say Maria is a homeowner in Miami who currently still owes $300,000 on her mortgage. She wants to see how two different valuations impact her financial options. Mortgage lenders generally allow homeowners to borrow up to 80% of their home's total value when accessing their equity. 

A higher value means significantly more cash in Maria's pocket if she decides to sell. For refinancing, a lower LTV (60%) gives Maria a much better chance at scoring low interest rates. With Valuation B, she can also unlock $80,000 more to fund major renovations or consolidate debt.

How to determine the value of your home

Before you can buy, sell, refinance¹, or get a second mortgage, you need to know the estimated value of your home. You have several options to do so, ranging from quick DIY research to professional evaluations.

Free online home value estimators

If you want to know how to estimate the value of home data in seconds, free online estimators can be incredibly helpful. These quick, no-cost tools use automated valuation models (AVMs)³  that pull data from public records, recent sales, and tax assessments to generate an instant estimate.

However, because algorithms cannot see inside your home to notice your brand-new hardwood floors or the stunning view from your patio, different platforms might yield varying figures. It’s wise to use more than one online tool to create a realistic baseline average.

Look at comps

"Comps" is real estate shorthand for comparable sales. Research recently sold homes in your immediate neighborhood that are like yours in terms of lot size, overall condition, bedroom count, and modern upgrades. If three similar homes on your street just sold for $350,000, your home is likely worth the same. The downside to this approach is that it is highly subjective. It can be difficult for a homeowner to accurately adjust the price for slight differences, like a neighbor having a finished basement or recently updated HVAC system.

Get professional help

Reaching out to a local real estate agent can help you get a better idea of your home. Agents can perform a comparative market analysis (CMA), combining their knowledge and experience of the local market with deep data analysis. If you are actively thinking about selling your home, many real estate agents will offer this comprehensive valuation service for free to earn your business.

Formal appraisals

A formal appraisal is the most accurate way to determine your home value. Appraisals are conducted in person by licensed, objective professionals who evaluate your home’s condition and compare it to local market data. An official appraisal is a requirement from lenders when you are refinancing or when a buyer is utilizing a mortgage to purchase your home. Keep in mind that you will have to pay out of pocket for this service – typically ranging between $300 and $600 depending on your location and property.

Factors that affect a house’s value

Here are some of the various factors that affect the value of a property:

• Location: Proximity to highly rated schools, walkable amenities, employment hubs, and low crime rates can drastically boost a home's worth.
• Market conditions: Basic economics play a huge role. Things work differently in a buyer’s market vs. a seller’s market. In a seller's market, where buyer demand is high, but housing inventory is low, values naturally increase. In a buyer’s market, demand is low for housing.
• Size and layout: The total usable square footage, the number of bedrooms and bathrooms, and functional layouts – like an open-concept living area – directly dictate a home's price ceiling.
• Condition and age: A well-maintained older home with a new roof and updated plumbing will always out-value a newer home suffering from neglect or deferred maintenance.
• Upgrades and appeal: Modern kitchens, spa-like bathrooms, and excellent curb appeal can incentivize buyers to pay more.

How to increase your home’s value

If you’re looking to increase your home’s value, a number of improvement projects are worth considering. Not all home improvements add value, especially ones that are more custom or extremely expensive. However, certain home upgrades can fetch you a higher price for your home and improve your quality of life.

Examples of home improvements that can boost a house’s value include:

• Bathroom additions or upgrades
• Garage door replacement
• Curb appeal enhancement
• New windows
• Energy-efficient upgrades

Simple improvements like a garage door replacement or manufactured stone veneer often recoup close to or over 100% of their cost at resale, while a minor cosmetic kitchen remodel usually sees a return on investment (ROI) of roughly 70% to 80%.

As a general rule, essential repairs are typically much more valuable than flashy aesthetic upgrades. Fixing a failing HVAC system or replacing a leaking roof provides a massive sense of security to buyers. A house with a sound roof but slightly dated countertops might be more worthwhile to a buyer than a house with the inverse.

The bottom line: It’s wise to keep track of your home value

Your property is likely one of your greatest financial assets, it’s wise to understand its overall worth, especially if you’re making a big financial decision like a refinance or sale. Keep in mind your property value is subject to market changes that are outside of your control. However, by maintaining the home and making necessary repairs and upgrades, you can help to improve your property value and overall financial capabilities.

Ready to see what your property is worth today? Check out Redfin's home value estimator to get started.

¹Refinancing may increase finance charges over the life of the loan.

²Home Equity Loan Product is a second standalone lien and may not be used for piggyback transactions. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Not available on Ameriprise products. Additional restrictions, terms, and conditions apply. Must meet qualification requirements. This is not a commitment to lend.

³Automated valuation model (AVM) is software that uses existing property details to generate a property’s estimated value. AVM appraisals are valid only for Home Equity Loan products. Not eligible for loan amounts greater than $400.000. When eligible for an AVM, the valuation will automatically be applied. Traditional appraisals available by request. Not eligible for loans already in process. AVMs are not available in all states or on higher-priced mortgage loans that don’t meet Qualified Mortgage (QM) requirements. Additional restrictions/exclusions may apply. This is not a commitment to lend.