Valuing a House: What Is It Really Worth?

In this article:

There are three values for any home on the market: What the seller thinks it’s worth, what the buyer thinks it’s worth and what a professional appraiser will think it’s worth. The key to a successful purchase is to get those three numbers to align.

You never want to assume that the asking price of a home is also its fair market value. Home values are somewhat subjective and always changing, so understanding how home values are calculated and what factors impact them can help you make a sound real estate investment.

Buyers should always do their research, taking time to determine the market value of a home before making an offer. Otherwise, you risk overpaying.

What is market value?

Simply put, market value is what a fully informed, willing buyer would pay for a home. It’s an amount informed by prices other buyers have recently paid for nearby, similar homes — called comparable homes.

What are comps in real estate?

Comps (short for comparables) are similar, recently sold properties that agents and appraisers use to help determine the value of a home. Comps are used for multiple purposes: to determine the listing price of a home about to list on the market, to help buyers determine a fair offer price and to help an existing homeowner find out the current value of their property and potential equity.

Comps usually consider five key criteria when calculating a home’s value:

Timeline: In a typical market, comps include homes sold in the past three to six months.

Location: Comps should be pulled from the same neighborhood, and in close proximity to the home in question. In an urban area, comps are usually within a mile or so. In rural areas, the radius comps are pulled from will be larger.

Home size: Comps should have the same number of bedrooms and bathrooms, same number of stories and a similar square footage. The lot size and presence of a garage or basement should be similar, too.

Features: Comparable homes should have similar amenities and level of finishes and updates.

Age: The homes being compared should be roughly the same age. Newer homes have newer designs, layouts, systems and appliances, which can increase value.

How comps determine home value

In order to determine a home’s value using comps, three to five comps are collected and grouped together. Then, a report is generated determining a market value, based on the sale prices and details of these homes. You could get two types of reports, based on who is doing the calculations:

  • Comparative Market Analysis (CMA): This is a report typically generated by a real estate agent, used to come up with an accurate list price/estimate of a home’s sale price.
  • Appraisal: This is a report generated by a licensed appraiser and it’s typically used for financing approval.

Keep in mind that the market value you receive from your agent or an appraiser can differ depending on a few factors.

Market speed: If your local real estate market is moving slowly, you might have to depend on comps that are older or less relevant, which could affect the results.

Comp selection: When multiple relevant comps are available, different agents or appraisers might choose to use different comps, which can affect the outcome slightly.

Valuation of features: The agent or appraiser will add or subtract value based on the features of a specific home, and different agents or appraisers may assign slightly different values to home features.

Subjective human nature: CMAs and appraisal reports depend on humans to evaluate and calculate the home’s value, which means you won’t get the same outcome every time. Remember, the true value of a home is how much a buyer is willing to pay for it.

What’s valuable to one buyer isn’t valuable to another

The value of some home features just comes down to individual buyer preferences. If a swimming pool is factored into the price of a home but you plan to just fill it in and re-landscape, it doesn’t make sense to pay extra for it. If you love new carpeting, it may be worth paying a little more for a house with new, high-end, wall-to-wall carpet. But if you’re going to tear it out to install hardwoods, it’s not. If your idea of home cooking is popping something in the microwave, you probably don’t want to pay a premium for a gourmet kitchen when a nice, reasonably sized one would suit you just fine.

Does the Zestimate determine fair market value?

Buyers can look at the value of a house on Zillow using the Zestimate. Zillow’s estimated home value should be used as a starting point, but it shouldn’t be the only data you use in determining a home’s value. The Zestimate is based on a sophisticated and proprietary algorithm which calculates both public and user-submitted data to estimate a valuation range for homes.

The Zestimate is not a replacement for an appraisal, CMA or another home value estimator.

Key factors that influence home value

Home values are usually based on comps, but it’s important to consider a home’s key factors when choosing comps to use. For instance, if a similar, nearby home sold recently, but it’s in a slightly better location, it’s probably worth more. How much more? That’s up to the buyer to determine.


Many features of a home can be changed by the owner — like finishes and even home size. But, you can’t change where the home is located. That’s why location is such an important factor in a home’s value. Outside of standard market appreciation, a home’s land will only increase in value if the area around it improves. For example, 60% of buyers say being in a walkable neighborhood is very or extremely important, according to the Zillow Group Consumer Housing Trends Report 2019.

Here are key location factors that can increase a home’s value:

  • Proximity to urban core
  • Cul-de-sac location or dead end (less traffic)
  • Farther away from railroad tracks, airports, freeway noise and power lines
  • Near parks or green spaces
  • Sidewalks and walkability
  • Proximity to public transit
  • Waterfront, water or mountain views

Job market

When the job market is strong and incomes are growing, people may look to buy a home, or move into a newer or larger home, increasing the demand for homes and boosting competition among buyers.

Property taxes

Budgeting buyers look at their monthly housing payments including taxes, so homes with very high property taxes can be out of reach for some buyers. However, property taxes help pay for public services that benefit the local community. As a buyer, you’ll have to determine the value of savings versus local benefits.

Interest rates

Buyer demand tends to be higher when long-term interest rates are lower, as low interest rates give buyers more purchasing power. Conversely, when interest rates are high, buyers may have a harder time paying off other debt, which can impact their ability to buy a home. When demand is lower, housing prices follow suit.

Home maintenance

While not directly related to a home’s value, buyers may also want to consider any maintenance needs they’ll have to pay, especially in the first year of ownership. For example, will they have to replace the water heater or service the HVAC system?

Buyers of Zillow-owned homes can rest assured that the main systems of the home have been evaluated and serviced by professionals prior to purchase.

The consequences of valuing a home incorrectly

For buyers, the biggest risk in valuing a home incorrectly is overpaying. Other consequences include loosing financing after appraisal or not getting your offer accepted at all.


If you value a home too high, you may set yourself up to be underwater on your investment, especially if market conditions are volatile. Plus, the more you borrow, the more you have to repay!

Low appraisal

Even if you and the seller agree on a price, the appraiser’s valuation will determine the amount your lender will loan for the property. When you agree to pay too much, it can be hard to get financing. If the appraisal comes in too low, it’s possible you will have to come up with a larger down payment, or you risk the deal falling apart.

Missing the opportunity

There’s also some risk in valuing a home too low. If you miscalculate, the seller may not accept your low offer and you may have to move on to another home.

What’s worth more: the home or the land?

Generally speaking, if you’re purchasing a newer or well-maintained home, the home is likely worth more than the land today. But in 50 years, without upkeep, the land would probably be worth more. The physical structure, appliances and materials usually depreciate over time, assuming everything in the home is left original.

Of course, most owners continue to update and repair their homes over the years. So, the longer you stay, the more you will inevitably have to improve to maintain the value of the home itself. The cost of labor and materials inflates steadily over time, so the value of improvements is moderately predictable.

The value of land however, is much more volatile and difficult to predict. A home within close proximity to desirable shops, restaurants, schools, city centers or attractions will generally have a higher value compared to a home farther from these perks. But those amenities and their desirability can change over time.

If you’re buying a home with a view or near a long-standing city center then odds are good that its value will appreciate, but land value is never guaranteed.


Zillow: Credit Score Single Most Important Factor for Mortgage Rates

Last updated on April 26th, 2018

This morning, Zillow, the company behind the love it or hate it Zestimate, released a new study that analyzed the impact credit scores have on mortgage rates and corresponding payments.

The company used data from 13 million loan quotes and 225,000+ purchase loan requests on the Zillow Mortgage Marketplace.

Zillow Studied Data on 225k Purchase Loan Requests

  • Zillow performed a deep data dive using their mortgage marketplace
  • They found that sub-620 credit scores barely receive one viable quote
  • Whereas borrowers with scores of 740+ received the best rates
  • The bar has been raised when it comes to credit scores

What they found was that borrowers with FICO scores south of 620 shopping for Zillow mortgage rates were unlikely to receive even one mortgage quote, in spite of being able to provide a sizable down payment between 15 and 25%.

At the same time, Zillow noted that the best mortgage rates are now reserved for borrowers with 740+ FICO scores, a departure from the old rule of 720 and higher.

That Questionable Credit Score Can Cost You

  • Zillow said borrowers with 740+ FICO scores receive an average rate of 4.42%
  • While borrowers with scores between 620-639 receive rates of 5.09%
  • That’s nearly .75% higher
  • Just because of credit score

Zillow said borrowers with scores above that key level were offered an average rate of 4.42% (APR) for a conventional 30-year fixed mortgage.

That compares to 5.09% APR for a score between 620 and 639. So clearly credit score matters, a lot.

Here’s a chart that details different APRs based on credit score:

mortgage APR by credit score

As you can see, the lower the FICO score, the higher the mortgage interest rate, a concept most people already grasp.

The chart also indicates what percentage of the population has a certain FICO score. Note that 28.4% of Americans have FICO scores below 620, the traditional subprime cutoff, meaning many are ineligible for most home loan financing based on credit score alone.

Yes, there are ways to get a mortgage with a low credit score, but as you can see from the chart above, it will cost you.

It will also make it more difficult to find financing, seeing that many lenders require credit scores above 620.

Fortunately, the majority of Americans out there have FICO scores in the highest bracket, with 40.3% in the 740+ category. For these individuals, credit likely won’t be an issue when trying to obtain a home loan.

However, credit score alone isn’t everything. Mortgage underwriters look at what’s behind your score as well, and if they find anything questionable, your application could be in jeopardy.

Credit Score Can Be a Huge Pricing Hit

pricing adjustments based on credit score

  • If you ever get your hands on a rate sheet
  • You’ll be able to see just how important credit score is
  • It gets especially expensive if you put little down
  • With pricing hits amounting to several points at high LTVs

Check out this screenshot from a lender rate sheet. It details the pricing adjustment for credit score across different LTV ratios.

The higher the LTV, the larger the credit score hit. Similarly, the lower the credit score, the larger the hit.

Heck, even with a halfway decent credit score of say 659 with more than 20% down, you’d be looking at a three point hit for FICO score alone.

That could be enough to push your mortgage rate from 4.25% to 4.875%, just to throw out an example.

And a rate that much higher will clearly impact your monthly mortgage payment, along with the total amount of interest you pay throughout the life of the loan.

It will also add to the layered risk of your loan application, which will make it much easier for an underwriter to flat out deny you.

So yes, Zillow is correct in saying credit score is the most important factor for rates and payments, all else being equal.

Just understand that there are other pricing adjustments that can significantly impact your rate, such as LTV and property type.

But credit score is of the few things we can all fully control, as hard as it might be sometimes.

Zillow also smartly recommends that you check your credit report at least six months before applying for a home loan. Again, great advice.

If there any mistakes or surprises you’re unaware of, tackling them could take a lot longer than you think. So knowing where you stand months in advance is paramount.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


Tools to Help You Take Charge of Your House-Hunting Adventure

When you’re housing hunting, you count on your real estate agent to identify homes that tick all your boxes. But why stop there? You can take control of your search with the help of Zillow.

Narrow your search

Start by setting up a search on Zillow by typing in your preferred city or neighborhood. Then filter the results by identifying the key elements you’re looking for:

Listing type: Do you want homes sold by an agent or by an owner? New construction? Foreclosures or houses coming on the market soon? All of the above? We also show you relevant houses that have recently sold and for how much. Only interested in homes with open houses? There’s an option for that, too.

Any price: This filter lets you set minimum and maximum prices for your search so Zillow can find what’s in your price range. And there’s an easy calculator to help you figure out what you can afford.

Number of bedrooms: Looking for a studio, a manse with more than six bedrooms or anything in between? Zillow will show you what’s available.

Home type: Are you hunting for a house, a condo or co-op, or a townhome? Or are you looking for a lot where you can build a unique home? You can pick any or see them all if you want to keep all your options open.

More: You also can narrow your search by number of bathrooms, the home’s square footage, lot size, the minimum and maximum age of the home and how long it has been on Zillow. Plus you can add keywords like “view,” “waterfront” or “pool” to target features that are important to you.

You’ll see a map with pins on for-sale homes that meet your criteria. Click on a pin to see more details of each home. When you find one you love, you can “save” them so they’re easily findable when you log into your Zillow account.

Get mobile

Downloading the Zillow Real Estate App lets you take your search with you.

You can search from where you are (via GPS locator), type in an address or draw a custom region on the map. You’ll receive notifications when new listings hit the market, when a saved home drops in price or is sold, and if an open house is scheduled.


When you look at a for-sale home on Zillow, you’ll see the home’s Zestimate®, the home’s estimated market value based primarily on similar homes with past sales and homes currently on the market.

The Zestimate shows you:
• Zillow’s estimate (not an appraisal) of market value to give you a starting point in determining if a home is fairly priced
• How and by how much a home’s estimated value has changed in the last 30 days
• A graph that compares a particular listing’s value to similar listings in the town or ZIP code, how taxes on the listing have changed, and how many people are looking at this listing

History notes

Each for-sale home page provides information on price history — date and price the home has been offered and sold previously — and on property tax and assessment history.

Neighborhood info

For-sale home pages provide a quick view of your desired ZIP code. You can see the median Zestimate of homes there, how hot or cold the market is, the foreclosure rate compared to the city and country, how walkable or car-dependent a neighborhood is, and whether Zillow predicts home values in that neighborhood will rise or fall.

School data

Since a great school system is a must-have for many home buyers, Zillow provides a school assessment tool. Each listing shows “nearby schools” — public and private — and how the public schools are rated by GreatSchools.

School info also includes how many students in the school, and the student/teacher ratio.

Save and share

When you find homes you’d like to see or just remember for further reference, Zillow lets you save your searches for easy reference later. And, since it’s sometimes nice to get a second opinion, you also can share your finds with friends via email or on social media.

You can customize your saved search location by zooming in or out and moving the map, or by drawing your own custom search area with the draw tool.

If you want to see how the status of a listing changes, you can ask for email updates (as well as customize the frequency of updates). You also can request emails of new listings with your search criteria, which will help you jump on a great house quickly.


What Is a Zestimate?

The content on this site is not intended to provide legal, financial or real estate advice. It is for information purposes only, and any links provided are for the user’s convenience. Please seek the services of a legal, accounting or real estate professional prior to any real estate transaction.


Thanks to More Data and Great Minds, Zestimate Accuracy Is Improving

Technical advances mean Zestimates are computed in nearly real time. And now data scientists, engineers and visionaries from around the world are focusing on them, too.

For many Americans, their home is one of their largest financial assets. The typical homeowner has a little over half of their wealth tied up in their home, according to a Zillow analysis of the Federal Reserve Board, Survey of Consumer Finances.

That’s why the Zestimate® home value – and improving its accuracy – is so essential. While it’s not an appraisal, the Zestimate, based on a complex mathematical equation, gives a homeowner a starting point for tracking their home’s worth.

A home’s value is ultimately determined by what someone else is willing to pay for. An algorithm can’t really take into account the perfect paint color, the way light filters through a window or that feeling of “home” when a buyer walks in the door.

Instead, the Zestimate algorithm pulls a host of publicly available records from county assessors: past sales, square footage and past valuations. On top of that, public records like road networks and neighborhood surroundings (views, parks and other amenities) round out the millions of data points that go into Zestimates.

Zillow is constantly working to improve the Zestimate. When Zillow launched 11 years ago, the Zestimate had a median absolute error rate of 14 percent. Today, the algorithm’s accuracy is within 4.3 percent nationwide, meaning half of Zestimates nationwide were within 4.3 percent of the final selling price, and half are off by more than 4.3 percent.

Some of the improvements are purely technical. For example, Zillow recently transitioned all data to the cloud so the team can compute the Zestimate in nearly real time. Zillow can process three times as much data, which means homeowner updates are processed faster, and the team of data scientists can iterate improvements more quickly.

And now Zillow has offered the $1 million Zillow Prize, inspiring the brightest scientific minds to improve the Zestimate. The competition, launched in May, has attracted more than 15,500 individuals who have downloaded the competition dataset. More than 2,500 data scientists, engineers and visionaries from 76 countries have submitted an average of 350 entries a day.

That’s a lot of great minds working to improve Zillow’s automated home valuations of 100 million homes across the country.

Learn more about Zillow Prize.