7 Purpose of Calculating Home Valuation & How it Affected the Market

Dated: January 6 2024

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The purpose of calculating home valuation is to determine the estimated worth of a property. Homeowners and real estate professionals use valuation to set an asking price, negotiate a sale, make investment decisions, or assess property taxes. It can also be helpful for refinancing or obtaining a loan. 


By considering factors like location, size, condition, recent sales, and market trends, a valuation provides an estimate of a property's current market value. It helps stakeholders make informed decisions regarding buying, selling, or investing in real estate.


In this article, find out more about the purpose of calculating home valuation and how it affects the housing market.


What Home Valuation Means

When we talk about a property's value, we're basically looking at how much money you'll get from owning it down the road. It's not like regular stuff that you use up quickly – real estate benefits stick around for a while. To figure out the estimate home value, you gotta think about economic trends, social vibes, government rules, and environmental factors. Home valuation affects the market in four different ways. First, it shows how much people want the home. Second, how well it meets their needs. Third, how rare it is. The last but not the least - how easy it is to pass ownership around.


Is Value = Cost or Price?

How much is my house worth? Here's the deal: value isn't always the same as cost or price. Cost is like the real money spent on stuff, like materials or labor. Price is what someone actually forks out. But here's the twist – while cost and price can mess with value, they don't call all the shots. Say a house sells for $150,000. However, due to a major issue of a shaky foundation, the real value might be way less than the price tag.

Purpose of Calculating Home Valuation

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What About Market Value?

An appraisal is basically a pro's take on how much a place is worth at a certain date. The purpose of calculating home valuation is to help businesses and mortgage lenders nail down the market value. In other words, they are seeking the most likely price the property would hit in a fair market. But here's the twist: what a place actually sells for (market price) might not always match its market value. For example, a home facing foreclosure could go for less than what it's really worth.


Why do we need property valuations? Here are 7 reasons why.


7 Purpose of Calculating Home Valuation


  1. For real estate transactions

At the very least, you should know the estimate home value before diving into property deals. It's like the GPS for knowing the fair market value – where your place stands in the money and real estate scene. A pro valuator swings by, checks out your spot, and crunches the numbers, factoring in everything that plays into a property's worth. It's the first step to knowing what you're getting into when buying or selling.


  1. To work out a reasonable rent

How much is my house worth? Getting your property valued is a smart move if you're on the tenant hunt. It helps you figure out a fair and competitive rent to throw out there. When chatting with potential tenants, you want to be spot-on with the cost. Typically, a good ballpark for rent is around 6-10% of what your property's estimated to be worth. It's the key to a fair deal that works for everyone.

  1. For loan approval

If you're eyeing a loan and using your property as collateral, getting it valued is crucial. The purpose of calculating home valuation is to determine how much loan you can secure. The higher the estimated value, the more loan potential. It's like the financial groundwork for making that property work for you.

  1. For the transfer of property ownership

If you're passing your property to someone else, working out the estimate home value is a must. The property's worth is the deal-breaker for stamp duty, so nailing down that number is key before handing over the ownership baton. It's the game plan for a smooth property transfer.

  1. For calculating taxes

How much is my house worth? When it comes to property, taxes come in all shapes and sizes. Be it wealth tax, vacant land tax, ground rent tax, property tax, municipal tax, you name it. Each department of the government wants its slice. They look at the estimated value of your property to calculate the bill. It's like the magic number that determines your tax duties with the government.

  1. For property acquisition upon bankruptcy

When someone's on the bankruptcy train, their properties can be up for grabs. But before diving into acquisition or auction mode, it's appraisal time. The purpose of calculating home valuation is to set the stage – figuring out things like the base price for the auction. It's the pregame to make sure everything is fair and square in the property shuffle.

  1. To determine a suitable home insurance coverage

When unexpected troubles come knocking, having your property insured is a wise move. And guess what makes this insurance game strong? Property valuation. Getting it right ensures that the coverage cost makes sense and there's no risk of being underinsured. It's like the safety net to keep you covered when life throws a curveball at your property.

Linda Peltz, eXp Realty 

DRE 01997670 


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Fresno Realtor Linda Peltz

Linda Peltz Realtor - eXp Realty * Born in Denver Colorado and raised in Arvada, Colorado. * Grandmother was a Realtor * Been buying and selling real estate since my early 20’s. I have been in t....

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