Are you planning to add your house to other homes in Westport on the market in 2021? Or do you plan to start looking for Westport luxury real estate and know you need an accurate value of the property before you apply for a mortgage? 

Home valuation is a crucial process in both the buying and selling of real estate. Here is what you need to know about the different methods and how to get the most accurate picture of what a home is worth.

When is Home Valuation Important?

Knowing the value of homes in Westport becomes necessary in a variety of situations. When you want to purchase Westport luxury real estate, you will want to know you are paying a fair price and a lending company will need to know the value of the home before they extend financing. Home valuation is also needed in order to issue homeowners insurance or other types of real estate insurance, for tax purposes, and to determine a fair price to list your home at if you choose to sell it.

What Has an Effect on Home Valuation?

Home values fluctuate for several reasons. The most common include:

• Demand and scarcity. 

The more prospective buyers there are in a given area with the means to buy homes in a certain price range, the higher homes in this price range and area will be valued. For example, the Westport luxury real estate market is experiencing a somewhat competitive market, meaning there is a roughly equal number of prospective buyers as there are homes on the market. This means that home prices will stay relatively stable and only a small percentage will sell above listing price.

• Economic and social trends. 

What’s currently going on in the economy and social trends all have an effect on home valuation. For example, once COVID hit, many made the decision to move out of major metropolitan areas to work from home in more affordable locales. This caused the values of homes in those densely populated areas to drop.

• Environmental conditions. 

Homes in an area where a natural disaster has recently struck or that are at high risk for other environmental issues can experience a drop in value.

• Improvements. 

When you upgrade your home, add on to it or make structural improvements, the home’s value will change. Projects with high ROIs will improve the value of the home by roughly the same amount as the project cost.

Ways to Determine Home Values

There are a variety of ways to determine a home’s value, some more accurate than others. Here are some of the most common methods:

• Sales comparison. 

Often used to value single-family homes and land, the sales comparison method uses market data to estimate value by comparing it to other recently sold properties that have similar features. Westport luxury real estate agents will often use this method, which is also called a comparative market analysis. Homes that are used as comparisons must be as similar to the property being valued in as many ways as possible, be sold within the last year in a competitive open market, and be sold under the same or very similar market conditions.

• Cost approach. 

When a property has been improved by the addition of one or more buildings, a cost approach can be used to determine the value. Separate estimates are done on each building and depreciation is taken into consideration. These estimates are then added together to calculate the amount of the improvement.

• Income capitalization. 

As referred to as the income approach, this method values Westport luxury real estate by comparing the rate of return an investor needs and the net income a property produces. It is usually used to estimate income-producing real estate investments such as commercial buildings, multi-family units, or shopping centers and is rarely used to evaluate single-family homes.

• Online valuation tools. 

You can find dozens of home value estimators online and more than 22% of homeowners have used these at one time or another to try to gauge how much homes in Westport are worth. Also called automated valuation models (AVMs), these tools are usually offered by real estate sites or lenders. They use tools such as tax assessments and public records of property transfers with mathematical modeling to come up with values. Most AVMs are not very accurate, though they can be a starting point for those who want to know the value of their property.

• FHFA House Price Index Calculator. 

For a slightly more accurate, quick method of determining value, the Federal Housing Financing Agency’s HPI calculator can be used. This tool uses the repeat sales method and tracks a home’s change in value from one sale to the next sale, then uses this to estimate how much the value will fluctuate depending on the market. If you have a conventional, conforming loan, you can use the HPI to quickly find out how much your home has appreciated over time and try to gauge its future appreciation.

Though all of these methods have their merits, the only truly reliable way to value a home is to hire a professional appraiser. Before a lender will approve a mortgage for homes in Westport, they will require this type of home appraisal. An appraiser will take into consideration the neighborhood and city where your home is located, characteristics of the house, and comparable properties when deciding the value of your home. Their final opinion will be delivered in an official report that will be used by the mortgage company to approve a loan. It may also be used by the seller to set a fair price for their Westport luxury real estate.

Whether you are buying or selling homes in Westport, getting an accurate view of their value is an important part of the process. If you’re ready to move forward in the selling or buying process, reach out to an experienced real estate agent like those at The Local Realtors to find out more about home valuation.