Determining Probable Market Value of a Property

What's My Home WorthThinking of selling your home? One of the first questions a potential home seller has is this: “what’s my home worth?

Real estate professionals will establish the probable buyer value (do a market analysis) by comparing your home to others like it which have sold recently and perhaps also those which are currently under contract (sale pending). These similar homes are called comps (for comparable listing, pending, or sale). They factor in market conditions as well (buyers market, sellers market, inventory shortage or excess).

What is an ideal “comp”? It is a sold home that is:

  • recent (within at least 6 months, but preferably 3, similar market conditions)
  • nearby (same zip code/town, within a mile is best, same schools, within same complex or subdivision is ideal)
  • similar type of location (interior lots vs one backing to a freeway, school, high voltage lines)
  • like condition (similar amount of updating/remodeling)
  • if the subject property has an added family room, the best comp would also have an added family room (original square footage usually sells for more on a price per SF basis than added living space, and additions made without permits and finals are worth less than square footage with permits / finals)

In a tract subdivision or condo complex with many recent sales, this can be easy. If the subject property is very similar to several recently closed sales except for either the level of improvements or the lack of them, an adjustment would be made only for the condition. In my experience, the same tract house may have a range of 10% – 15% of value between completely original and not well maintained to thoroughly remodeled with high quality appliances and upgrades. (Most homes are somewhat updated. Few are either entirely or original, or even more rare, completely run down.)

Let’s do an example of a tract home in which there are several sales nearby of the same floor plan in recent months. And let’s say that a typical home there, somewhat updated, sells for $1,000,000 just to use a round number. The numbers could break down along these lines:

  • typical sale, moderately updated $1,000,000
  • same floor plan, mostly original condition $900,000 – $950,000 “depending” (very original to run down could go lower, depending on market conditions)
  • same floor plan, remodeled, turnkey $1,050,000 – $1,100,000 “depending” (“stunning remodel” could go higher depending on market conditions)

The range of values is often 10% on the same street, but it could be as much as 15% or 20% or more if you have a difference of more than just condition (lot size, precise location, view, a change in market conditions between one sale and the other). As an example, if all the comparable properties were “all original” and your home is “somewhat updated”, it’s likely that your home will sell for 5% more than the others did because of your updates. The range between “all original” and “stunning remodel” is not usually more than 20%.

It is much, much more difficult to establish market value for a home when there are no good comps. Sometimes the property being evaluated is extremely different from those sold recently & nearby.To establish a probable market value, it again will be a matter of adjustments, but when there are no good comps, a lot of adjustments must be made. Real estate professionals will adjust up and down for condition, location, the market’s behavior etc.

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