How Much Has Your Home Gained Since You Bought It? The Method and Its Limits

There is one number you know for certain: what you paid. The next question follows naturally: how much has the house gained since? Our guide how much is my home worth covers the ways to value a property. This article describes a narrower method that starts from your purchase price: apply to it the change in your area's median sale price. It is simple, handy for gauging an order of magnitude, and limited for three reasons worth knowing before you rely on it.

The method: apply your area's change to what you paid

The reasoning comes down to three steps:

• find the median sale price in your area, for your property type, over a period around your purchase date;
• find the same median, over a period of the same length, today;
• work out the change between the two, and apply it to your purchase price.

The idea is that if comparable homes in your area sell for a given percentage more today than when you bought, yours has moved in a similar way. The result is not a valuation: it is an indicative value that carries your purchase price forward in time.

A worked example, step by step

The figures below are an illustration built to show the method. They describe no real area.

The calculation assumes that the house, bought roughly 10% above the area median, still sits in the same proportion to it. That is the first assumption, and it is where the limits begin.

Limit 1: your home is not the median home

The method assumes your home's position relative to the area has not changed. It may have. If the area's gains came mostly from a different type of home than yours, or your street has become more or less desirable, the change in the median does not describe your own path.

Your purchase price was not necessarily at market level either. A home bought above market in a bidding war, or below it in a rushed sale, carries that gap through the whole calculation, since the change is applied to that price.

Limit 2: what the house has become since you bought it

The area median knows nothing about your house. A new kitchen, a new roof or a finished basement can lift it above the indicative value; years of deferred maintenance can push it below. A renovation does not add dollar for dollar: its effect on value depends on the work and the area, as our article on the return on renovating before you sell shows.

Limit 3: the median moves for reasons other than price

A median does not track the price of the same house at two dates; it tracks the middle of whatever sold in each period. If the homes selling today are bigger, newer or better located than those selling when you bought, the median rises faster than prices did. That mechanism is explained in our article on the mix effect on median prices.

Two precautions limit the distortion: compare periods of the same length, long enough to hold a reasonable number of sales, and stick to the same property type in the same area.

What the calculation is for, and what it does not replace

Used well, this calculation answers one specific question: "roughly where would my home sit today if it had tracked its area?". It helps you spot an unrealistic expectation, in either direction, before you discuss price with a broker or a buyer.

It does not tell you what the market would pay for your home today. For that you start not from your purchase price but from recent sales of homes like yours, with their features. That is what a valuation based on comparable sales does; the indicative value from this article then serves as a check that the result is plausible.