The Art And Science Of Determining A Home’s Value

What is my home worthThere are many considerations that must be taken when determining an asking price for any home that’s to be sold. Asking prices are subject to different pricing strategies based on each individual’s unique situation, and the first crucial step is determining the market value of the property. Therefore, this post will be focused on estimating a properties current market value.

For starters, lets go over some REALTOR lingo.

Subject Property– The home in which you’re completing the value analysis for.

Comp-Comparable Properties- Properties comparable to the subject property.

CMA – Comparative market analysis or competitive market analysis. A CMA is a report of the following analysis.

The Process

In theory, the value of the subject property is equal to that of an identical house that sold yesterday next door. However, finding an identical home that meets this criteria is extremely rare, we will need to make adjustments based on the homes location, attributes, and time to sell/time on the market.

Since this perfect scenario doesn’t usually exists, we will want to find a good sample of Comps to help estimate the value of the subject property. The Comp search will start with a macro perspective and then become more precise. The Comp search order is as follows: Time Sensitive Requirements-> Comp Location-> Comp Property Attributes.

  1. The first Comps search criteria is to find properties that fit the time sensitive requirements. This sample should be made up of at least two recently sold properties (within 6 months), at least 2 active listings(homes currently for sale), and 2 pending (homes that currently have accepted offers, but have yet to close)– this sample will ensure that the results are still relevant.
  2. After determining the time requirements for your Comp search, the next criteria will narrow the locations of interest. All comps should be within in a mile of the subject property. If the subject property is in a rural, less populated areas this may not be possible, so you may need to widen your search radius to as far as 20 miles. The key is to find comps in similar area types. For example, if the subject property has water frontage on a lake, you will want to find comps on the same lake or a similar lake close by.
  3. Lastly, you will want to refine the Comp search based on the property’s attributes. Narrow comps down to those with similar lot sizes, bedroom/bathroom count, finished square footage, amenities, and quality of construction and materials used. For example if the subject property is a 3 bedroom, 2 bathroom, 2,000 square feet, traditional home- you can search for homes with 2-4 bedrooms, 1-3 bathrooms, with 1,500-2,500 square footage. Again, it will be nearly impossible to find exact duplicates of the subject property, so you will need to find comps that closely match the subject property.
Once you have found your sample of 5-9 Comps, you should have a pretty good understanding of the subject property’s value bounds. To further improve the estimated value, you can make adjustments to each comp to equalize the differences between the Comps and the subject property.

The Adjustments

Below is a simplified example of adjusting Comps to the subject property.
 

For attributes that are superior to the subject property, they must be adjusted down to match those of the subject property. In our example above, Comp 1 has one more bedroom than the subject property. If the bedroom is worth $5,000, the adjusted price is reduced by $5,000. For attributes that are inferior to the subject property, they must be adjusted up to match those of the subject property. In our example above, Comp 2 has one less bedroom than the subject property. If the bedroom is worth $5,000, the adjusted price is increased by $5,000.

Once the analysis is complete,  take the sum of all adjustments and add it to the asking/sold price of the Comp. This will give you an estimated value of the Subject Property based on one Comp. Going through the same process with all Comps and taking the average of the adjusted prices will give you a good estimate of the subject property’s market value.

The adjustment values are determined using a similar approach to the market analysis. Property 1 is exactly the same and next door to Property 2, but Property 2 has one extra bedroom. If both properties sell on the exact same day- Property 1 for $196,000 and Property 2 for $200,000, it can be concluded that a bedroom is worth $4,000.

You can go through this process to determine an estimated market value of your home, but if this seems like too much work, don’t fret. Contact Coldwell Banker East West Realty below, and one of our expert Realtors can provide you with this analysis Free of Charge!

What can I sell my house for

 

Alex Rogers About Alex Rogers

I educate, I read, I analyze, I communicate, I negotiate, I consult, I blog. But mainly, I help good people buy & sell homes. And yes, I sleep. Sometimes. Connect with me:

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Comments

  1. Smart girl. She has a bright future ahead of her if she’s already a homeowner at 14.

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