How much is your home worth? Well, that depends on how you look at it. There are three ways to do that: market value; replacement value; and property tax value. There’s a substantial difference in these values, but each affects the other.
Market value: Market value is the value that homeowners are most interested in. It’s the amount homes sell for in your area. It is partially determined by what other homes that are similar to yours sold for. Market value isn’t based on what you paid to do certain kinds of improvements, such as finishing your basement, update your bathroom or kitchen, etc. These improvements add to the value, but that value isn’t determined by how much they cost. The market value will tell you what you could get if you sold your home, and how much you would actually receive, or its equity. The best way to determine the market value is to have a realtor tour your home and assess its value.
Replacement value: Replacement value is the amount it would cost you to rebuild if your home was destroyed by something like a fire or natural disaster. Replacement cost is what you would have to spend to remove debris and rebuild based on construction costs in your area. Replacement value is what your insurance company will come up with in order to know what to charge you for premiums. It’s also an important value to know and keep on top of, because if costs to rebuild go up, but you don’t change your coverage, you could find yourself under insured and paying out of pocket if a disaster happens. Replacement value is something to always have in mind.
Property tax value: This is the value that state, county and/or municipal governments use to figure out how much you will pay in real estate taxes on your home. These values are often similar to market values, but not always. There can be differences either higher or lower due to outdated assessments or mistakes made by those assessing the property tax values. Property tax values are also based on improvements to your home.
Replacement value as well as property tax value is important. Don’t just worry about market value, even if your aim is to sell.