How to Calculate Average Rate of Appreciation
Before you buy a home or sell a home, it’s always a smart idea to calculate the rate of appreciation first. Real estate appreciation may sound complicated, but it’s not. Think the rate of appreciation as how the value of a home increases with time.
For buyers, this is especially useful in determining what a property might be worth in the future. If you’re able to calculate that number, you’ll know whether or not you’re making a smart investment.
If you’re selling a home, knowing how to calculate the average rate of appreciation can give you a great baseline for determining your asking price.
What You Need to Calculate Your Real Estate Appreciation Rate
To calculate the rate of appreciation on your home, all you need is:
- The price you purchased your home for
- The current value of your home
- How many years it has been since your purchase
- The ability to calculate exponents on your calculator
The first thing you’ll do is divide the current value of your home by the price you purchased your home for. Let’s say you bought your home for $200,000 and it’s now worth $250,000. Your equation will look like this:
Example: 250,000 ÷ 200,000 = 1.25
You’ll now raise the result you received in the first step by the 1/nth where n is the number of years it has been since your purchase. For example, if you purchased your home 10 years ago, then this would be your equation:
Example: 1.25 with the exponent 1/10 (or .10) = 1.0225651825635729
Now you’ll subtract 1 from the result you received in the second step.
Example: 1.0225651825635729 – 1 = 0.0225651825635729
Now you’ll multiply the answer from the third step by 100 to find the average annual rate of appreciation.
Example: 0.0225651825635729 X 100 = 2.25 percent
Things to Keep in Mind
Following the steps above will give you a good idea on what your home’s real estate appreciation rate might be, but keep in mind that this is just an estimate. No one can predict the future state of the real estate market. However, calculating an estimate will give you a good idea and can help you set the right price if you’re looking to sell.
If you have any questions or need help, check out our packages for home sellers. We’re always happy to help.