Maybe you’ve never considered a home as anything more than a place to live, but when you own a house and the land it sits on, that property is considered an asset. Thinking of a home in these terms will help you better understand many of the concepts involved in mortgages and property lending.

Measuring Value

Assets are simply things that have value or worth. We gauge their value in a couple of different ways. One is personal, which we measure in terms of appreciation and satisfaction. That’s not something you can easily hold a yardstick up to measure—think of sentimental value, for instance. But another side of value is very measurable in monetary terms. The monetary value of a home is usually the market value—what someone would pay to buy the home if it were for sale.

Determining a home’s value

One way to determine the market value of a house is for a sales transaction to occur. A seller agrees to sells the property to a buyer who agrees to buy it at a mutually agreeable price. That mutually agreeable price becomes the present market value of the house.

Another common way to determine market value is to hire an appraiser. This is a professional whose business it is to evaluate and judge a property’s value. The appraiser compares the property to similar properties that have recently sold in same neighborhood—noting the similarities and differences between the properties (such as whether one house has a swimming pool and the other does not). Appraisers always support their conclusions with physical descriptions and photos of the compared properties and a complete explanation of how they determined the value.

Many loan programs specify a list of approved appraisers who are qualified to determine property value, so your lender will handle the appraisal arrangements. Appraisals typically cost between $400 and $500.