In the present day's market where there are so many foreclosure and bank REO sales, working out the true value of investment property can be tricky. The equivalent sales strategy is the most commonly used? And still the most accurate one? To figure out the price of single-family homes, condominiums and smaller multi-unit properties (2 to 4 units).
Start by researching information regarding sold properties on your local government internet sites for your selected area. Many tax assessor's offices and county court-houses offer searchable online databases that permit you to view the costs for properties inside a specific area. They usually list comprehensive details about the properties, including square footage. And, subscriber websites like Electronic Valuer (www.electronicappraiser.com) give you detailed information, especially in areas where online data is scarce.
Free websites like Zillow.com also offer property info, but the data is less detailed than the paid sites. As an example, the seller's name may be missing, which might be applicable if the seller was a bank, as in the case of a forced sale. If that is the case, it cannot be considered an analogous sale as the property was sold in trouble.
Be careful about using websites that supply a computer generated valuation. These are called automated valuation models (AVMs), which aggregate sales information from similar properties to determine an approximate price. While AVMs could be a baseline for judging value , they can be off by as much as 10% or even more. With a little research, you can highlight the price to as near as 3 to 5 p.c.
The most useful computer database for getting information regarding comparable properties is the local MLS. This database shows the quantity of days on market and includes points out that indicate whether the property was updated, whether the seller offered concessions on the sale and so on. This additional info is generally not available through other sources, so asking a real estate agent or valuer to help will be vital, because most MLS systems aren't accessible to the public.
While many things come into action when you're evaluating a residential property's worth by "comps" (analogous sales), the three key factors are location, size (square footage) of the home and the quantity of bedrooms and bathrooms. Glaringly, you'll need to look at many other aspects before it is possible to pin down the precise value of a property, but these are the "big three" You should be able to look at similar sales concerning properties with these 3 factors and get an excellent idea of the value of the property you're selling
Location
Location is critical when you are comparing sold properties. A professional appraiser typically investigates houses within an one-mile radius or less, and so should you. In the case of a subdivision? Where the houses are all similar and built in the same time period. You need to compare similar homes with similar styles in the same subdivision to get a precise valuation. If there is a wide mixture of properties in the subdivision, you may need to go outside of it to get comparable sales. Just watch out with "dividing lines" Geographic lines such as opposite sides of the stream, the park, or a main road can be invisible dividing lines that put the property in another college district and may not collect equitable comps.
Square Footage
When determining a home's worth, be certain to evaluate the sq footage. Note that assessors often look at houses that are inside 20% up or down in sq footage as equivalent properties. Generally (especially inside a subdivision), most homes fall within a reasonably limited size range. Therefore , you may be able to develop a good gauge for the selling cost of homes in those particular sizes.
Of course, not all square footage is formed equal. Most people think that if a place has 1,000 square feet and is worth $100,000, then the 1,100 square-foot house next door would be worth $110,000. Wrong! The extra 10% in sq footage equals only a few percentage points in price. If these two homes offer the same location, style, and number of bedrooms and baths, the 10% extra square footage won't change the valuation much. Why? Because there is a fixed cost on a place based on the value of the land, cost of. Construction, sewer, subdivision plans and other things. An extra couple of hundred feet of space involves very little cost? Only wood, nails, carpet and possibly some insignificant electric and plumbing costs.
Rooms
The number of bathrooms and bedrooms is more applicable than just the raw sq footage. To paraphrase, a three-bedroom home with 1,200 sq. feet could be worth a bit more than a two-bedroom home with 1,250 sq. feet. It also matters where the bedrooms and loos are located? On the main floor or the cellar. While finished basements can add value , the quantity of that value is less than it is for above-ground living areas. And, this significantly varies dependent on different regions of the country. In damp areas, below-ground living space isn't as valuable to owners as in dryer areas of the country.
To figure out a home's value using comps, also look at the quality and number of bedrooms and lavatories. Three-bedroom homes are generally a massive and over two-bedroom houses, but 4 or five-bedroom houses don't add as much over a three-bedroom if they're about the same size in sq footage. Likewise, two lavatories is a giant plus over one rest room, but three or more don't add as much price.
When comparing lavatories, make sure you understand the different sorts of lavatories and check them correctly. A full loo encompasses a shower, bath, toilet and sink. A three-quarter bath has a shower but no tub, plus a toilet and sink. A half bath has a toilet and sink but no shower or tub. A three-quarter- or full-bath create approximately an identical value, especially if another loo in the house has a tub. A half bath has less price unless there are sufficient other bathrooms in the house. Also , a five-piece bath (separate shower and tub) usually would not add better value than a regular full bathroom with a combination shower and tub.
Other Factors
There are other things to consider that have an effect on the value of a home, but generally you'd give these less weight than the location, number and size of bedrooms and toilets. Some homes have one-car or two-car garages, some have carports and others have neither. The garage factors in some value , depending on the rest of the neighborhood. For example, if the neighborhood comps all have two-car garages, this will affect price as much as 10% on the subject property if it only has an one-car garage or no garage. Nevertheless if the houses are all small and there's a mixture of garage options, the garage will not be as big of an issue. Likewise, a four-car garage in a three-car-garage-neighborhood probably won't count for much either. One exception is with condo developments. Parking spots or garages are often sold with condominiums and can have significant value , especially in large cities where parking is limited to the street.
In addition to taking a look at properties sold in your selected area, you want to take a look at properties that are for sale. While requested prices aren't sold prices, it will give you an idea where your local marketplace is heading? Down or up. Additionally , remember that if your method is to flip the property, the properties for sale are your direct competition and so the asking prices are very applicable. For example, if you find properties that have sold for $150,000 but the prevailing inventory on the market is prices at $140,000, the prices of the competition become just as relevant, if not more, as the sold costs of other houses.
If you regularly invest in the same neighborhood, take time to build yourself a "due diligence" Notebook of properties that have sold, are under contract and are for sale in your area. Have your realtor check the MLS every week for new listings and sold properties so that your info is constantly current. Remember, you are only as good as your data, and the more info you have, the more correct your values will be!
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Marco Santarelli is a backer, author and founder behind Norada Real Estate Investments — a national property investment firm providing turnkey investment property in expansion markets around the United States. For more articles like The easiest way to Determine Property Values in The present day's Market, come visit our Real EstateI Investing Blog where it was originally printed.
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