Knowing what your home is worth can be a bit of a guessing game, since home values can rise (and fall) over time as neighborhoods change. Just because the home down the street sold for a record amount six months ago doesn’t mean yours will net the same amount when you’re ready to sell. Because of this, it’s important to not only maintain and care for your house as you would any major asset, but also to know exactly the best way to earn your money back if the time to sell your Chicago, IL, real estate ever comes.
“Similar to reviewing your retirement portfolio with your financial adviser, it is important to keep a check on your home’s market value for the different changes that happen in your life,” explains Rachel Hillman, owner of Hillman Homes, a full-service boutique real estate agency based in West Newton, MA. Whether you plan to sell now or in 10 years, knowing what your home is worth is crucial to your finances. Trulia’s home value tool is one easy way to get started.
Here’s why you should keep a pulse on the market and regularly ask the question “What is my house worth?”
You’ll get a better return on your upgrades
Sure, you’ve been dying to rip out your Corian countertops and replace them with chic soapstone complemented by a sleek glass tile backsplash. But if every other home in your neighborhood still has the same kitchen you have, it might be in your best interest to skip the pricey remodel. “It’s useful for a homeowner to consult with their real estate broker before they make any upgrades to the home,” explains Keith Thompson, a broker with Berkshire Hathaway HomeServices Carolinas Realty in Charlotte, NC. “Some upgrades have a higher return on investment than others. There is also the risk of overimprovement. If a homeowner upgrades their home above the norm in their neighborhood, they may have to wait until those types of upgrades are more common to see a return.”
You’ll know when to sell … and when to stay put
Sometimes when a market is hot, putting your home up for sale makes more sense than staying put. If that’s the case, knowing what your investment is really worth can make you think differently about whether it’s time to move. “It’s important to have a good grasp of your home value in the same way you need to know how much any of your assets may be worth,” says Thompson. “Additionally, if life circumstances change, a homeowner may be in the position to make a quick decision to sell or not. Having good data and an experienced broker to help you assess value is key to making the best decision possible.”
You can see if a home equity loan makes sense
Besides needing to know if an upgrade or renovation makes sense, it’s also important to know what your home’s true value is before applying for an equity loan to put on an addition, complete renovation work, or upgrade that kitchen. “Most banks will let you apply for an equity loan up to 80% of your property value, and there are some that will even go to 90%,” says Hillman. “If you are thinking about obtaining a loan, it is important to understand your home value before you go through the stress and hassle of filling out the paperwork and paying the fees for an equity line application.”
You’ll know when you can stop paying PMI
“Many mortgage companies will charge private mortgage insurance [PMI] if the buyer puts less than 20% down,” explains Hillman. “However, once you have reached 20% equity, either by payments or appreciation, you can usually apply or refinance to remove the PMI. Knowing your home value will help to know when to touch base with your lender about removing this payment.”
You’ll be able to maximize your list price
Overestimating your home’s worth — or mistiming the listing — can be detrimental to making a sale. Besides losing interest from potential buyers because you may have outpriced them from the get-go, your home will also probably sit on the market longer, which can be a listing’s scarlet letter in the real estate world. “Overpricing your home actually loses you money,” says Casey Cuppy, a broker with The Cuppy Group Real Estate Advisors in Phoenix, AZ. “Many buyers won’t even want to tour an overpriced home because they see it as a waste of time. Being overpriced typically leads to longer market time and more holding cost. As we all know, once a home sits on the market for a long period of time, it starts to raise questions with potential buyers on why it hasn’t sold yet.”
What tactics do you use to monitor the value of your home? Share your tips and experiences in the comments!