Your Home’s Value – What is Your Home’s Value
Your home’s value is really a segmented value depending on the particular value you are considering. There are three separate value segments.
When most people are asked what is your home’s value they almost immediately respond with the purchase price as the value. In some cases, that could be true given the purchase price was the market value at the time.
The three segments of your home’s value are:
- Assessed Value
- Replacement Value
- Market Value
I mentioned market value and purchase price in the same sentence but I listed it as the third value segment simply because I want to talk about it last. That is how it was assigned to the third spot on your home’s value list.
If you have been a homeowner for any length of time you are very familiar with assessed value. This is the value off which you pay your property taxes. The local tax assessor is the person who computes the assessed value.
Various jurisdictions use various assessed value formulas. This article isn’t meant to dissect each formula or even talk about them. It is meant to explain your home’s value and tell you who determines that value.
You are told the assessed value when the county mails out your property tax bill. Even if you are paying your property taxes through your mortgage payment you should still receive a copy of this statement.
If you feel the assessment is too high, you have the right to appeal. Your local assessor’s office is the place to start your appeal. To the best of this writer’s knowledge all assessor offices have an appeals process which is mandated by the state you will have to follow.
Get all of the paperwork and forms and start completing each one. Be sure to meet all filing deadlines and other requirements. You don’t want to lose your appeal because you left out vital information or didn’t append a proper certificate or other required document.
Replacement value is exactly that. It is the amount of money it would cost to rebuild your home in the event of a total loss. For example, you purchased a home for $250,000 but your insurance agent says the cost to rebuild is $300,000. The smart homeowner would have a homeowners insurance policy for $300,000.
A quick and easy method to determine replacement value is to multiply the square footage of your home by the price per square foot it would cost to rebuild your home. In my area, that price is $150. $150 times 2000 square feet equals $300,000 to rebuild or replace. According to replacement value, $300,000 becomes your home’s value.
Hopefully this little math exercise tweaked your brain to review your insurance coverage. With housing prices diminishing, the replacement value can be, and often is, higher than market value.
Speaking of market value, this is the number most often used as your home’s value when you toss out those numbers. Market value is actually what a willing buyer will pay for your home. That’s it. There is nothing tricky or complicated about market value being your home’s value.
Theoretically then if no one is willing to buy your house it has absolutely no market value but it still has an assessed value and a replacement value. So, by default, your home’s value would be one of those numbers. Unfortunately they have no relation to market value if you can’t sell.
There you have your home’s value looking through three different value prisms. Each one has its place regarding your home’s economic function. Of course, your home’s value is really what you perceive it to be.
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