How much is my house worth? It is probably the most common question our clients ask, and for good reason. For most of us, the equity in our home makes up about 70% of our net worth. Yet most homeowners have no real idea what their home would sell for, especially in today's market with higher inventory, higher mortgage rates and a lot more negotiation happening between buyers and sellers.
In this post, Josh Finigan breaks down the four different values your home has, what each one is good for, and which one actually tells you what a buyer will pay.
Table of Contents:
Why Your Home Has Four Values
Value 1: Your Zestimate
Value 2: Your Appraised Value
Refinance vs. Purchase Appraisals
Where Appraisals Miss the Mark
Value 3: Your As-Is Cash Offer
Value 4: Your Fair Market Value
How We Find Your Fair Market Value
The Four Values Side by Side
Your Next Step
Why Your Home Has Four Values
You would think it has never been easier to know what your home is worth. You have your Zestimate. You have AI tools that will spit out an answer in seconds. Your mortgage company may even mail you an estimate of your home's value every single month.
The problem is that none of these numbers agree, and having more of them only makes things more confusing. There is a simple reason they all differ: your home does not have just one value. It has four.
Those four are your automated estimate (like a Zestimate), your appraised value, your as-is cash offer value and your fair market value. Each one is built a different way and answers a different question. Once you understand what each number is really measuring, it gets much easier to know which one to trust when you are deciding whether to sell.
Value 1: Your Zestimate (Automated Valuation Models)
Let's start with the value most of us see every day: the Zestimate. Zillow is one of thousands of websites that will tell you what your home is worth. These tools are called automated valuation models, or AVMs, which is a fancy way of saying a computer's guess.
A site like Zillow takes public data about your home, such as the square footage, the number of beds and baths and what you paid for it, and mixes it with recent sales in your area. An algorithm then produces a number. No person has ever looked at it, and no one has stepped inside your home. It is a math equation from space.
Josh compares it to a weather forecast for an entire county. Your phone says it is 72 degrees and sunny in Charlotte, and for most of Charlotte that is dead on. But you are standing in your backyard getting rained on. The forecast was not exactly wrong. It just was not a forecast for your backyard. It averaged a thousand square miles and handed everyone the same answer. A Zestimate works the same way, averaging your whole zip code, from the waterfront homes to the fixer uppers and distressed properties, into a single algorithm.
How accurate is a Zestimate?
Zillow itself admits the limits. For homes already listed for sale, it says the Zestimate is about 2% off. That sounds good, but there is a catch. Once a home is listed, the Zestimate leans heavily on the list price, so you can see a home's Zestimate jump from $400,000 to $550,000 the moment it hits the market. At that point it is not predicting value. It is leaning on the homework the listing agent already did.
For homes that are not on the market, Zillow says its estimate is off by an average of 7.5% from what the home sells for. For a home here in Charlotte, that means a Zestimate could be off by $35,000 or more on average. Automated values are a fine answer to "how is the market doing in my area?" They will not tell you how much a buyer is going to pay for your house.
That does not mean they are useless. We send our clients an automated home value every single month, using one of the more accurate models on the market, because it is a great way to keep your finger on the pulse of the market. Just know the number could be a little higher or a little lower than what a buyer would actually pay.
Value 2: Your Appraised Value
The second type of value is your appraised value. An appraisal usually happens because a bank orders one, either for a refinance or for the purchase of a home. Its purpose is to confirm the bank is not lending $1 million on a $200,000 property.
Unlike an automated model, an appraiser usually shows up in person. They walk the home, measure it, and look at its condition, upgrades and lot. Then they compare it to recent sales and write a full report. It is a real person looking at real comparable sales and your actual house, so it is a big improvement over an algorithm and a lot more accurate.
To make things a little more confusing, though, not every appraisal looks at your home the same way. The reason the bank ordered it changes how the appraiser approaches the job.
Refinance Appraisals vs. Purchase Appraisals
Refinance appraisals
With a refinance appraisal, there is no buyer, no contract and no real anchor to pull from. The appraiser is flying solo to confirm you have enough equity to pull out of your home. Josh has seen these vary wildly, coming in much higher or much lower than what the home is actually worth on today's open market. There is usually less pressure on the appraiser to sharpen their pencil and get into the details. They are taking a quick look to make sure the equity is there.
Conventional purchase appraisals
The appraisal most of us have experienced is the one that happens when you buy a home. With a conventional appraisal, the appraiser has one job: confirm the contract price. They generally assume the home is in good, livable condition unless something is obvious, like a giant hole in the ceiling where you can see the sky.
FHA and VA appraisals
FHA and VA appraisals are not as thorough as a home inspection, but they come with a checklist of safety and condition standards. These appraisers will flag things a conventional appraiser would walk right past. So you can have the same house, a different checklist and sometimes even a different number, depending on the type of appraisal.
How Appraisers Calculate Value, and Where They Miss the Mark
Appraisers follow strict guidelines. They usually need at least three sold properties, ideally sold within six months to a year of the appraisal, and as close to your home as possible, ideally in the same neighborhood or within a few miles.
They line your home up against each comparable sale and add or subtract value for the differences. If the comp has 300 more square feet, they subtract some value. If you have a more updated kitchen, they add some. A bigger lot, an extra bath, plus this, minus that. Then they average the adjusted values, and that becomes your appraised value.
It sounds scientific, but it is a lot more of an art than a science. Those adjustments can be quite different from one appraiser to the next, because it is one person's judgment call on what one bathroom is actually worth. They are also trying to apply a math equation to one of the biggest emotional purchases a person will ever make. Josh points to three situations where that math often fails to predict what a buyer will pay:
Unique homes. If your home sits on three acres and everything around you sits on a quarter acre, that extra acreage is hard to appraise. The same goes for the log home, the mid-century modern, the home with a guest house or the waterfront home with an immaculate view. Often the comps simply do not exist, so the appraiser is left improvising. The more unique the home, the shakier the math.
The most renovated home in the neighborhood. You updated the kitchen, the baths, the whole house, but your neighbors have not, and the recent sales look the same as they did in the 1960s. The appraiser has no way to prove what your renovations are worth. Josh has seen homeowners spend over $150,000 renovating and get only a fraction of that from the appraiser, not because the work isn't worth it, but because it isn't proven.
Things buyers care about that the math ignores. A home that backs up to a main road, a smokestack overlooking the backyard, power lines or train noise nearby. These can change how a buyer sees your home's value, yet often they don't show up in the appraiser's equation.
That is why two appraisers can visit the same property on different days and come back with two completely different values. Still, your appraised value is real. The bank believes it, and it can throw a big wrench in your sale if it comes in low. It just isn't always exactly what a buyer will pay in today's market.
Value 3: Your As-Is Cash Offer
The third value is your as-is cash offer. This is what an investor will pay for your home today, no questions asked. Most of us have gotten the calls, texts, emails, door knocks and roadside signs saying "we'll buy your house for cash." So what number are those investors actually offering?
Here is how investor math works. They start with your fair market value, meaning what your home would be worth on the open market after all the repairs are done. Then they subtract the cost of repairs and updates, their holding costs, the closing costs on both the purchase and the resale, and the profit they want to make, because they are not doing this for free. What's left is your as-is cash offer.
Depending on your home's condition, that offer usually lands between 65 and 75 cents on the dollar. So why would anyone take 30% less than what their home is worth? There are some decent reasons. Maybe you don't want to make repairs or updates. Maybe you don't want the hassle of showings. Maybe you need to sell very quickly. In those cases a cash offer may be worth it, but there is a price for that easy button.
If you are considering a cash offer, Josh's advice is to know your home's fair market value first. Then you can decide whether the convenience is actually worth the discount. He has seen it time and time again: people who don't know what their home is worth end up leaving a lot of money on the table.
Value 4: Your Fair Market Value
Now for the big one. Fair market value is what your home actually sells for on the open market, between a willing buyer and a willing seller, where nobody is forced, everybody is informed and every buyer out there gets a shot at it.
There is only one place fair market value is truly determined, and that is the closing table. That is what sets it apart from every other value in this post. It is the only one that is proven. The Zestimate is a guess. The appraisal is one professional's opinion. The investor's number is a discount. Fair market value is the number the market votes on with real money.
Fair market value also accounts for everything the other values leave out: the renovated kitchen, the private lot, the fact that your street is quiet and the comp's street is not. Buyers see all of it, even when the appraiser and the algorithm miss it. Buying a home is an emotional decision. At the end of the day, your buyer is not a math equation. It is a family standing in your kitchen, picturing their kids growing up and playing in your backyard.
How We Find Your Fair Market Value Before You List
So how do you know your fair market value before you hit the market? By taking a deep dive into what your home is worth in the eyes of a buyer. As Josh tells his clients, there is no magic bullet. Your home isn't worth exactly $858,346. It is about finding the right range based on the sold comps in your area, your home's upgrades and renovations, your street and what you back up to.
Before we meet with a client, our team spends a couple of hours on that analysis. It covers three viewpoints:
How an appraiser will see it. The sold comps and how they compare to your home on square footage, beds, baths and updates.
Supply and demand. An absorption analysis of your area, looking at how many homes you are competing with compared to how many buyers come through each month.
How a buyer will see it. What a buyer would say about your layout, your backyard and how the home is set up. These are the real differences that shape what buyers will pay.
We then bring those viewpoints together to identify what a buyer is willing to pay in today's market. Josh draws on a decade in the business and more than 850 homes sold to land on the price range that maximizes your value, so you don't overprice or underprice your home.
Our team sold 81 homes this year and 102 homes last year, and our clients' average list price to close price ratio is 99.27%.
Your Next Step
All four of these values have a place. If you want to keep an eye on the overall housing market, an automated value is a great tool, and many of our clients love getting a monthly report on their home's value. You can sign up for that using the home value tool on this page.
If you want a clear picture of your home's fair market value, Josh will put together a full home valuation report just for you. Request your value, and he will personally spend a couple of hours digging into your home and send the report straight to you.
Whether you are thinking about buying or selling in the Charlotte area, and whether you plan to move in nine days or 90 days, The Finigan Group would love to help. Call, text, email or schedule a Zoom meeting with us to talk through what you want to accomplish.
