How to Determine Property Value

As lucrative as the real estate business is, without proper skills and evaluations, it can incur many debts in the long run. Real estate is all about determining property value correctly and professionally. It's a skill that is very important to your success as a real estate investor. Should you determine a property's value incorrectly, you can make a substantial investing mistake!

In fact, estimating the value of a real estate is necessary for various endeavors, including financing, sales listing, investment analysis, property insurance, and taxation.

If you're venturing into the field, either as a real estate owner or real estate investor, the ability to determine property values correctly is a skill, amongst many others, that you should acquire professionally.

Unfortunately, too often, real estate investors value property all wrong. Well, that's about to end!!. This article will introduce the basic concepts and methods of real estate valuation, particularly as it pertains to sales.

Start With Online Valuation Tools

Online tools work with the information you provide about your home, along with the data collected from public records to estimate the property's price. Seems easy and convenient, yeah! But be mindful that whatever result you get using an online valuation tool is an estimate, not the exact cost.

Online valuation tools provide you with a helpful ballpark idea of what your home might be worth. Online value estimator takes in data about your home and gives an estimate of the overall value, price per square foot, property details, sales history, and value history.

Online valuation tools mainly rely on publicly available data, which they then run through computer models to derive value estimates. It simply means that the availability of public data about your home or any other property will influence the accuracy of the estimate you will, and more importantly, the amount of data varies by municipality and sometimes by home.

To put that in context, if the house is an outlier, it becomes difficult for anyone to price it, whether it's a human or a computer. Also, if there have been lots of recent home sales in your area, there will be more data to work with, and therefore, you'll get a more accurate estimate.

    Pros

• Most are friendly and fee to use.
• A quick estimate of your property value even without much info.
• Many valuation tools regularly update, which is helpful if you need to tweak your list price during the selling process.
• Examples include Zillow, Trulia, Redfin, Realtor.com, Real Estate ABC.

     Cons

• These tools are designed to provide an estimate, and many do not include some unique aspect of your home.
• Estimates from valuation tools vary depending on the available data.
• These tools generally don’t consider things like renovations or repairs, which can significantly influence your home’s value.

Work With a Realtor

The process many Realtors use to estimate a home’s value is called a Comparative Market Analysis (CMA). This analysis requires information about comparable homes in your area, sometimes called "comps." It tells you the price range of similar homes, how long before they are finally sold, and the exact selling price.

Generally, when working up a CMA, realtors look for recently sold homes that are comparable in;

• Size
• Location
• Number of bedrooms/bathrooms
• Style and view
• Home type (e.g., single-family home, condo, townhome, etc.)
• Recent sales price

In preparing a CMA, realtors consult the local Multiple Listing Service (MLS). It’s a database of properties in a given area that are listed for sale or have a sale pending.

Also, another tool you might be needing is the Broker Price Option (BPO). Unlike CMA, you may need a license to get one, especially in some states. BPOs are briefer, slightly expensive, and commonly used in short sales or foreclosure situations.

Hire a Professional Appraiser

Usually, the bank will only require the person buying a home to get an appraisal before the requested loan can be completed. While you, as a seller, may not be required to get an appraisal, it's ideal you get one to confirm your home's value.

Regardless, the appraiser provides a fair, thoroughly researched estimate of a home’s value. This is more comprehensive and substantial from the estimates you get online. The appraiser does this by and visiting the property and get sufficient details about the property.

There are different ways appraisers collect their details. They may use Fannie Mae’s Uniform Residential Appraisal Report as a guide for conducting an appraisal. This report is a checklist of things appraisers should look for, such as:

• Where the home is located
• Whether the home is in a FEMA flood zone
• The condition of the utility services and fixtures on the property
• When the home was built
• The type of foundation
• The condition of the attic and basement, heating and air systems, walls, windows and doors
• Whether the home has any amenities, such as a pool, deck or fireplace
• Any structural improvements or repairs that have been made, and lots more.

However, be careful not to confuse an appraisal with the home inspection, which focuses on whether the property is structurally sound enough for sale to be completed. Also, ensure before hiring a real estate appraiser that he meets all the requirements of the Appraisal Qualifications Board (AQB) and is well experienced in appraising your type of property.

Evaluate Comparable Properties

Some factors to consider, and compare with other selling properties in your area, when selling your home or property includes;

• Structural components and features
• Age and size
• Sales history
• Any upgrades or improvements
• Overall condition of the home
• Neighborhood and location
• Listing price vs. actual sale price

However, it would help if you remembered to account for differences between your home and comps that could affect value. You have to be very honest with yourself.

For example, a home in your neighborhood that recently sold might be very like yours, but it has a pool, where your home doesn’t. You’d then have to determine the pool's value and subtract it from the estimated value you came up with for your home, based on the comp.

There are several comparison tools online you can use to evaluate your comps. Briefly, let's consider some of the tools.

1. Realtor.com’s Just Sold tool. As the name implies, you can use it to check for the prices of recently sold homes in your area.
2. Federal Housing Finance Agency’s HPI Calculator. This shows the price charts of homes in your area as they increase and decrease.
3. Homesnap. Homesnap is a search portal that provides you with detailed listing information for homes across the country.

Other online tools include Neighborhood Scout, PropertyShark. And when you’ve come up with estimates based on comps, be sure to check the trends in your local market.

Conclusively, getting the rough estimates is not enough; ensure you check trends in your local market. Check changes in price trends, foreclosure rate, changes in property taxes, and all are essential information before buying or selling your property.

About author: Ben is a Web Operations Executive at InfoTracer who takes a wide view from the whole system. He authors guides on entire security posture, both physical and cyber.