In today's market where there are that many foreclosure and bank REO sales, figuring out the actual value of investment property can be hard. The comparable sales system is the most commonly used? And still the best one? To determine the cost of single-family houses, condos and smaller multi-unit properties (two to four units).
Begin by researching information about sold properties on your local govt internet sites for your target zone. Many tax assessor’s offices and county courts offer searchable online databases that allow you to view the costs for properties within a particular area. They usually list complete details about the properties, including square footage. And, customer web sites like Electronic Valuer (www.electronicappraiser.com) give you detailed info, particularly in areas where online information is scarce.
Free websites such as Zillow.com also offer property info, but the information is less detailed than the paid sites. As an example, the seller’s name could be missing, which might be relevant if the seller was a bank, as in the case of a forced resale. If that's the case, it can not be considered a close sale as the property was sold in trouble.
Watch out about using websites that supply a computer created valuation. These are called automated valuation models (AVMs), which aggregate sales data from comparable properties to figure out a projected price. While AVMs can be a benchmark for determining value they can be off by as much as 10% or even more. With a little bit of research, you can pin down the price to as near as 3 to 5 percent.
The most helpful computer database for getting info regarding equivalent 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 extra data is generally unavailable through alternative sources, so asking a real estate agent or appraiser to help you will be vital, because most MLS systems are not accessible to the general public.
While many things come into action when you're evaluating a residential property’s price by “comps” (comparable sales), the 3 key elements are location, size (square footage) of the home and the number of bedrooms and bogs. Obviously, you’ll need to look at many other aspects before it is possible to highlight the precise price of a property, but these are the “big three” You might be able to look at comparable sales involving properties with these 3 factors and get a good idea of the value of the property you are selling
Location is extremely important when you are comparing sold properties. A professional appraiser typically investigates homes inside 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 want to compare similar houses with similar styles in the same subdivision to get an accurate valuation. If there's a wide mixture of properties in the subdivision, you may need to go outside of it to get comparable sales. Just be careful with “dividing lines” Geographic lines like opposite sides of the river, the park, or a main road can be invisible dividing lines that put the property in another college district and may not gather equitable comps.
When determining a home’s value, be totally certain to appraise the square footage. Note that appraisers typically look at houses that are within 20% up or down in sq footage as similar properties. Usually (particularly inside a subdivision), most houses fall inside a fairly limited size range. Therefore , you will be able to develop a good gauge for the selling price of homes in those particular sizes.
Of course, not all square footage is created equal. The great majority of people think that if a house has 1,000 sq. 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 some percentage points in price. If these 2 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 home based primarily on the value of the land, cost of. Construction, sewer, subdivision plans and other things. An additional couple of hundred feet of space involves little cost? Only wood, nails, carpet and doubtless some small electric and plumbing costs.
The quantity of bathrooms and bedrooms is more important than simply the raw square footage. In other words, a three-bedroom home with 1,200 sq. feet could be worth much more than a two-bedroom home with 1,250 square feet. It also matters where the bedrooms and bathrooms are found? On the primary floor or the cellar. While finished basements can add value the amount 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 wet areas, below-ground living space isn't as valuable to owners as in dryer areas of the country.
To figure out a home’s price using comps, also look at the quality and number of bedrooms and bathrooms. Three-bedroom houses are sometimes a large plus over two-bedroom homes, but 4 or five-bedroom homes don’t add however much over a three-bedroom if they're about the same size in square footage. Likewise, 2 bathrooms is a big and over one rest room, but 3 or more don’t add as much worth.
When comparing bathrooms, make sure you understand the different types of bogs and match them in the correct way. A full loo encompasses a shower, bath, toilet and sink. A three-quarter bath has a shower but no tub, and a toilet and sink. A half bath has a toilet and sink but no shower or tub. A three-quarter- or full-bath create roughly an identical value, especially if another bathroom in the house has a tub. A half bath has less worth unless there are enough other bathrooms in the house. Also , a five-piece bath (separate shower and tub) generally wouldn't add more value than a regular full loo with a combo shower and tub.
There are other factors to consider that have an effect on the value of a home, but sometimes you’d give these less weight than the location, size and number 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 dependent on the rest of the neighborhood. For example, if the neighborhood comps all have two-car garages, this could affect value as much as 10% on the topic property if it only has an one-car garage or no garage. Nevertheless if the houses are all little and there’s a mix of garage options, the garage won't be as serious an issue. Likewise, a four-car garage in a three-car-garage-neighborhood possibly won't count for much either. One exception is with condo developments. Parking spots or garages are sometimes sold with condos and can have significant value particularly in large towns where parking is limited to the street.
In addition to looking at properties sold in your target area, you want to have a look at properties that are for sale. While requested prices are not sold costs, it'll give you an idea where your local marketplace is heading? Up or down. Also , remember that if your strategy is to flip the property, the properties for sale are your direct competition and thus the asking prices are extraordinarily applicable. For example, if you find properties that have sold for $150,000 but the current inventory on the market is costs at $140,000, the asking prices of your competition become just as applicable, if not more, as the sold costs of other houses.
If you constantly 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 within your area. Have your realtor check the MLS every week for new lists and sold properties so that your information is consistently recent. Remember, you are only as good as your data, and the more information you have, the more correct your values will be!
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Marco Santarelli is a backer, writer and founder of Norada Real Estate Investments — a nationwide property investment firm providing turnkey investment property in growth markets around the United States. For more articles like Ways to Establish Property Values in The current day's Market, please feel free to visit our Real EstateI Investing Blog where it was initially printed.