How to Value a House

How to Value a House

By CA, Realtor James Jam

If you are considering selling your home you may be wondering how to value a house. I’m often asked by both home buyers and sellers “is price per square foot important?” The short answer to this question is that price per square foot can be a useful tool to learn about the real estate market value in a particular area, however there are many elements of a home that factor into the ultimate value of a home that this simple formula does not consider. While it may seem logical that if you take the price of a home, divide it by the square footage, you will arrive at price per square foot as the value of your home, it does not take into account whether the home has an obstructed view or not, if the home was recently renovated or uses basic materials, nor whether the home includes energy efficient appliances or old inefficient appliances.

Price of a home = $ per square foot

Square footage of home

Technological advances in the last decade have improved our lifestyles tremendously, and often times we like to think that we have a GPS for life that provides us with all of the answers to our questions quickly and easily. For a quick and easy answer to your question, if you do work with an agent who determines the value of your home solely based on the price per square foot method then run for the hills! Any experienced Realtor will attest that there are far too many qualities and characteristics of a home that can compromise the price per square foot method as a basis for the value of a home. The square footage formula is also how Zillow’s “Zestimate” works and why I often discourage my clients from investing their time into looking at their homes “Zestimate” as it is always grossly overvalued or undervalued, providing homeowners with a false perception of the actual value of their home. Below I explain in detail how determining the value of your home is more complex than the price per square foot formula.

Location

We’ve all seen those stunning beach front homes worth a fortune, but have you ever considered how much money the location factors into the value of a home? I have a perfect example of two homes with the same number of bedrooms, bathrooms, and square footage but one is located west of I-5 in Del Mar, CA and the other is located about 3 miles east in Olivenhain, Encinitas, CA. Regardless of the similar qualities, the home was sold over $270,000 more than the home in Encinitas. Even more shockingly, a home located in Westerville, Ohio with the same criteria as the San Diego homes is a whopping $1.5 million dollars less expensive. Beach and water front homes are not the only valuable variable when it comes to location. A home can go up in value with a close proximity to a highly state ranked school and contrarily the value of a home is lower due to a lower quality school district. Location can also significantly affect the value of a home depending on what side of the street it is situated. For example, two homes in Carmel Valley that are located on the same street, built by the same builder, and have the exact same layout, yet one sold for more than the other by $60,000! Why was there such a large price disparity? The more home that was valued at $60,000 more has a beautiful view of natural preserved land, while the other does not have a view because it backs up to a common neighborhood street. Whether a home is 10 feet, 10 miles or 1,000 miles away, the location can affect the value of your home.

Quality of materials

To determine the true value of a home, it is important to understand that homes are built using different quality of materials that appeal to lower income families, middle class or upper class families. When building a home for a lower income family, the builder’s intention is to keep the cost of materials as low as possible while still passing code requirements. While the appliances, flooring, windows, and roofing of a lower income family home is functional, they comprise the lowest quality materials. For middle class families, builders use more durable materials than the economy home and often add more durable and better quality cabinetry, heating system, or newer plumbing. A step up from the standard home is a custom built home which adds features such as granite countertops, bamboo wood flooring, or handmade cabinetry. A custom home may also include high end architectural characteristics such as roman style columns, brick or stone walls, and top of the line appliances, windows and fixtures. Custom built homes are often refined to meet a specific buyer’s desires and give priority to quality characteristics rather than cost efficiency. Finally, you have the luxury dream homes found in magazines which you often times catch yourself fantasizing about living in a home with such impressive attention to detail. Luxury homes spare no expense as they feature the best of all worlds on the interior and the exterior of the home. Lavish home theaters, an indoor waterfall, or window walls are not uncommon in the luxury home class. Fortunately for homeowners, you do have an option to increase the value of your regardless of what class your home was originally built for. We’ve all seen those entertaining real estate reality TV shows “Love it or list it,” “Extreme Makeover,” and “House Hunters” that show us an average home turned into a beautifully renovated home. With an expert’s assistance, renovations and upgrades can turn a standard built home into a custom home. While the location and the quality of materials are often the foundation for pricing a home, there are still other items that distinguish the value of a home.

Supply and Demand

As we’ve all learned in economics, a low supply of an item coupled with a high demand of that item can increase the value of the item. For example, there is a high demand of single level homes in La Costa, Carlsbad California coupled with a limited supply. Regardless of the homes other characteristics, due to its prime location and high demand, these homes often sell well above a larger home that is two stories. Single level homes are typically popular with elderly or injured people who have a difficult time walking. These types of homeowners will not only overlook the material traits of a home, but they will pay top dollar so long as it improves the quality of their lifestyle and wellbeing.

While location, quality of materials, and the supply and demand of a home are the foundations of pricing your home, there are many subdivisions within these categories that only an experienced Realtor can assist you with when determining the value of a particular home. It is important to find a real estate agent that you trust and that has a proven track record who can provide you with the most accurate value of a home. For a free market evaluation of your home, click HERE.