DETERMINING A HOME'S VALUE
By Holden Lewis - Bankrate.com

Here's a question that paralyzes homeowners with anxiety: "How much do I ask for my house?"

The flipside of that question -- "How much should I offer?" -- keeps buyers up at night, too.

Figuring out a home's market value takes a lot of science, a little bit of art and a hard head. The science consists of obtaining prices of similar homes in the neighborhood that have been sold recently. The art entails comparing those homes to the one you want to sell or buy -- how they are similar, how they differ, what makes the other homes more or less valuable. The hardheaded part demands putting aside your emotions and arriving at a price that the market will support, regardless of how you feel about the house or how much money has been put into it.

The process is especially vital for people selling their houses without the help of real estate agents. But even if you have hired an agent to sell the house, or if you're buying instead of selling, it's a good idea to estimate your home's value independently, so you can find out if you and the agent see things the same way.

There are two excellent Web sites to start with. Both allow you to look up sale prices of nearby homes. HomeGain's service offers a list of nearby home sales that includes each home's address, price, sale date, number of bedrooms, square footage and approximate year built. Disclosure: Bankrate is a business partner with HomeGain.

A competitor, Home Price Check, offers a shorter list, giving each home's address, month sold and the number of bedrooms and bathrooms. A spot check of four addresses in three states showed that HomeGain offers more data, but Home Price Check's sales data are more recent -- one month newer in Jupiter, Fla., and four years newer in Garden City, N.Y.

"It's a great way to understand the value of real estate because it's the raw data," says Ben Joslin, general manager of Domania Inc., the unit of Lending Tree that operates Home Price Check.

Real estate agents estimate home values by finding comparable houses (called "comps"), too, but not all buyers and sellers use agents. Colby Sambrotto, chief operating officer of ForSaleByOwner.com, a service for people who sell their homes without real estate agents, sends his clients to Home Price Check. It beats going to the county recorder's office and looking at real estate records.

Sale price information helps buyers, too, allowing them to come up with an educated idea of how much to offer. Bob Moulton, president of Americana Mortgage Group Inc., a mortgage brokerage in New York, says he frequently advises buyers to go online and check the recent sales prices of nearby homes, especially when the seller isn't using an agent.

Among Moulton's current clients is a twentysomething couple who are buying their first home. They have agreed to pay $592,000 for a house on Long Island. The owner is selling without an agent. Moulton told his clients that the iffiest part of the transaction is the appraisal -- the appraised value could be lower than the purchase price.

Sitting with his clients in the office, he looked up sale prices of houses within three-quarters of a mile from the home that his clients are buying. Prices varied from $450,000 to $750,000. "So the house they were buying seemed to be right in the middle," Moulton says. "I suggested that they drive by the other homes to get a sense of what they were buying versus what they found in the area."

After driving by and looking at the comps they identified online, Moulton's clients felt confident that they had offered a fair price, and they await the lender's appraisal.

Even if you do a good job of comparing a house to others, an experienced real estate agent probably can do better. An agent, Joslin says, will take into account the year a house is built, whether the home's architectural style (Colonial or ranch, for example) is in vogue, and other factors that affect a home's value. In coming up with an opinion on a home's market value, the gold standard is to hire a licensed appraiser, the best source of unbiased opinion about how much a house is worth. There are several kinds of appraisals.

A full appraisal -- called a complete summary appraisal -- requires interior and exterior inspections, photos, drawings and comparisons with at least three nearby homes that have been sold recently. A complete summary appraisal can cost several hundred dollars, and it requires the owner's cooperation -- something you might not have if you're the prospective buyer.

To save money, you could ask an appraiser to prepare a condensed analysis called a 2055 form, with or without an interior inspection (an exterior-only inspection often is called a "drive by").

For even less money, you could spring for an automated valuation model, or AVM -- a computer estimate of the home's value. Many real estate-oriented Web sites have links to AVM services. Domania, operator of Home Price Check, offers an AVM service called Value Check. Other sites offering AVMs include HomeGain and Electronic Appraiser. Don't expect an AVM to yield as accurate or precise an opinion as a complete summary appraisal.

But it might be good enough to relieve your anxieties and let you get a good night's sleep.