Being able to accurately determine property value is essential if you want to make it in the real estate investing world. Whether you’re a beginner, intermediate, or advanced investor — your ability to assess property value will surely come in handy. Master the skill now, and your future self will give you a big thank you hug!
Without further ado, here are 6 ways to determine property value.
1. Check Out the Neighborhood Comps
One of the best (and more obvious) ways to determine property value is to check out the sales price of neighboring properties. These properties can be used to compare and contrast with the one you are trying to currently assess, and are commonly referred to as “comps”.
Ideally, the property that is being sold and the property that you are trying to assess are the same type (e.g. single-family home, apartment, etc.). Even if you find a comparable comp to use as an anchor price, you still need to account for the differences between the two properties. To account for the differences, you may use a DIY approach or hire a professional. We’ll talk about these methods down below!
2. Harness Online Valuation Tools
According to a recent survey, over 22% of homeowners used an online tool for property value. These online tools are referred to as automated valuation models, or AVMs. While AVMs won’t get you concise or exact numbers, they can help you understand the ballpark number that you are dealing with. Being often free, accessible, and simple to use — they aren’t that bad either. Websites like Zillow and Trulia have tools that combine public record information like property transfers, deeds of ownership, tax assessments, and market prices, with some mathematical equations to deliver something semi-accurate. While Zillow and Trulia are free, some websites require payment before they can assess your property.
If you have the ability to do so, there are certain AVMs used by professionals. These professional-grade AVMs require more information and contain an “accuracy” score feature. If this interests you, reach out to a local real estate or property management professional to see what they can do.
3. Comparative Market Analysis
A comparative market analysis is an estimate of a property’s value based on similar properties that were recently sold in the area. Essentially, a comparative market analysis is the same as you comparing your property to “comps”. The only difference is that the research is being conducted by a licensed real estate agent or broker. Depending on the amount of experience and time you have, hiring a professional to complete a comparative market analysis may be a good idea.
4.Hire a Professional Appraiser
A professional appraiser is the number one way to get an accurate assessment of your property value. After all, these people appraise properties for a living! These professionals use several factors to assess the value of your property. They look at the current market, the property itself, and the nearby “comps” that we mentioned earlier.
For their market research, appraisers will look at the city and neighborhood that the property resides in. For the property component, they will look at the type of property, the land the property sits on, and how recently updated the property is. The last component, as mentioned before, are the comparable “comps”. These “comps” will reveal factors like sales, listings, and vacancies, for similar properties in the area.
While hiring an appraiser will cost money, that cost is typically worth it in the long run. That’s because appraisers ensure that your property is fairly valued (so it has an easier time being sold) while also protecting you from accidentally undervaluing your property. If you decide to hire an appraiser, make sure that you take the time to do your research. This will ensure that you get an accurate property value assessed by a trained professional.
5. Examine Economic Indicators
The economy will always play a factor — whether good or bad — when evaluating property value. For example, if unemployment is at an all-time high, a homeowner would typically have fewer opportunities to sell their homes. Or, they’ll have to sell their house at a fraction of the actual value. Depending on your real estate strategy, this may be a great time for you to start purchasing.
Keep up with the broader economy as well as the real estate-specific economy so that you can properly execute your strategy when the time is right. To get the rundown on the economy every week, most news outlets will have a section dedicated to the economy. You could also check out our blog each week to get the latest scopes and tips for real estate and property management!
6. Take Advantage of the FHFA House Price Index Calculator
If you’re looking for something more accurate than the various property value calculators found online — your best bet is to use the FHFA house price index calculator. While this calculator is still found online, the host of the service is the Federal Housing Financing Agency itself. Their calculator uses a more scientific approach while still being completely free.
How does it work? The tool itself uses a repeat-sales method — meaning that the FHFA tracks a property (though mostly just houses) from one sale to the next. With this information, the calculator then adjusts the prices according to the current market at the time.
While the FHFA calculator is better than run-of-the-mill ones found online, it is not perfect. It won’t offer an exact price, but the estimated value should be pretty close to the actual price.
Why It Matters
Real estate is a lucrative business — if you do it right. A single transaction could help you lose or gain thousands upon thousands of dollars. When you have a proper understanding of a property’s value, it increases your chances of earning from that transaction. Get your property assessed, so you can reap the most benefits possible!