A home's worth what it is brought in by the highest bidder which is called fair market value. There are many reasons why it's important to know a homes fair market value. One reason could be that the property is about to be put up for sale due to a change in lifestyle or a divorce or another could be that the property could be involved in an eminent domain situation with the government. No matter what the reason is the fair market value is an important number to know because it allows a homeowner to fully understand the value of his property which will help him avoid being taken advantage of.
For step #1 you need to do a comparative market analysis which involves finding out how much properties are valued in your area that are comparable to yours that have recently sold while checking at the same time checking the prices of comparable homes that are currently on the market. You can perform this analysis by looking through websites like Domania and Zillow.com, or you can ask a real estate agent to do a market analysis for you.
Step two involves getting an appraisal done on the home. This can be done through a licensed appraiser who will perform a physical inspection of your property. The appraiser will be looking to determine how well the home was constructed, its overall condition, finding any maintenance issues and seeing what upgrades that have been added to the home. Furthermore, they will perform a comparative market analysis, measuring the condition and amenities of your home against other homes in the area that have recently sold and those that are currently on the market to be sold. The appraiser will likely also measure the income potential of the home, or how much it could bring in if it were rented. An appraiser's impartial opinion of a home's worth is generally very close to its actual market value.
And finally in step three you will need to figure out how much it would cost to replace your property should it become damaged by fire or an earthquake. You will need to determine the cost of materials, tools, technology and manpower to rebuild your home from the ground up. This replacement cost technique is commonly used in situations in which a comparative market analysis is difficult when there are few properties similar to yours in the immediate neighborhood. Figuring replacement cost involves estimating the value of the land and adding how much it would take to replace the structure. This number should be very near the market value you would arrive at through a comparative analysis or a professional home appraisal.