How Are Home Prices Decided?

Are you wondering how the prices of homes are determined? For many, this is a real mystery. There doesn’t seem to be a general formula or equation that offers any real insight into this elusive number. Home values are officially determined by a process known as an appraisal—done by an appraiser licensed to evaluate property values. Here we will explain the critical factors involved in determining home prices.

What is an Appraisal?

To begin learning how prices are decided, you need to understand what an appraisal is and generally how the results of the assessment are determined. Appraisers visit the subject property and take measurements, notes, and pictures of the property to aid in their evaluation. Once they have gathered all of the required information, they use it to arrive at a property value determination.


The market that a home resides in is one of the essential determinates in the cost evaluation of a property. The region, city, and neighborhood a home is located in will significantly affect the pricing of the property. If a property is near a school system that is looked upon favorably or unfavorably, this will have an impact on the property value also. This is among other locational factors that are weighed in the evaluation process.

Property Characteristics

The various characteristics of a property are at the heart of a property’s evaluation. Property characteristics that are considered during evaluation include:

  • Number of bedrooms
  • Number of bathrooms
  • Home Size
  • Improvements
  • Major repairs needed

The above characteristics are used to compare the home to similar homes that have been sold or listed in the national multiple listing service (MLS) database within the period of approximately nine months to a year. When selling your home, being realistic is critical. Sellers must understand that the current price of the property when entered into a home sale proceeds calculator to determine the potential profit of a property.

Comparable Home Sales

As previously stated, the subject property is compared to similar houses in the same neighborhood or surrounding area. Properties with similar bathroom and bedroom counts, size, and amenities that have recently sold are used to compare property values in the immediate area surrounding the home within a one to three-mile radius depending on the municipality the home resides in.

The Recent Value History of the Property

Property is also valued by the recent history regarding the valuation of the property. When evaluating a property, appraisers will look at the annual appreciation of a property to factor into the equation.


Now that you understand a little bit about how home prices are decided, you can begin moving forward on the journey to assess the value of your subject property. If you are seriously curious about how much a home for sale is worth, a quick call to your realtor with a request for comparable market analysis (CMA) will yield an excellent ball-park price for the subject property. If you want an official price evaluation on your own home, you can hire an appraiser to evaluate your home’s value.