What's the Value of My Home?
A common question Omaha homeowners have is, "What's the value of my home?" The answer is, it depends on what the purpose of the valuation is. A home has different values based on what the use of the value is. Theses values can move in opposite directions since each has a different meaning.
The first and most common value of a home, and the one most people think of, is its market value. This is the price at which a ready, willing, and able buyer would be willing to pay for the home. Until a home is sold, then this value can be approximated by comparing the property to other recent sales. Even if one is not thinking of selling, knowing this amount helps a person track their net worth.
The most misunderstood value is the county's assessed value. This is the value the county assigns in order to determine the amount of real estate taxes to be collected from the owner each year. While it is meant as an approximation of market value, counties uses mass appraisal techniques and very general information to arrive at the assessed value. Because of this, these numbers have a wide margin of error.
Replacement value is the cost to rebuild a home should it be destroyed. This value is generally only used by insurance companies and indicates how much money an insurance company would pay a homeowner in the event the home were destroyed. Since replacement value is based on construction costs, not the real estate market, it is possible for it to go up while the market value declines. It is important to periodically review the replacement value to ensure adequate coverage. It is also critical to understand that the replacement value is just for the house, most insurance companies only cover the contents of the home for their cash value.
Market value, assessed value, and replacement value are each distinct and are used for diverse purposes. Understanding each is important when making decisions regarding one's home.