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Real Estate Value


Real Estate Value

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Real estate value is often misunderstood, but how do you put a value on a house? By using the techniques of
professional real estate appraisal.

real estate value, real estate, appraisal

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What is real estate value? It isn't what you have into your house. It isn't what you feel it is worth. It is what
the market will pay. How do you figure out what the market will pay? For single family homes, the best way
is by seeing what similar homes have sold for.

Figuring replacement cost isn't very useful. It's difficult to say what land is worth in a city center where none
is left for sale, for example, and tough to gauge depreciation of the home itself. Valuation from replacement
cost is used as a secondary method, and for unique homes that can't be compared easily with others.
However, the primary method of real estate appraisal used for homes is a market analysis using comparable

<b>Real Estate Value 101</b>

First find at least three similar homes in the same area that have sold within the last year, and preferably
within the last six months. You can find this information is in county records (sometimes online now), or
from a real estate agent with access to the multiple listing service. Make sure you have the basic sales
information: sales price, terms of sale, description of the property, etc.

Here is how you use this information to find real estate value. Write down the selling price of your first
comparable. Review the description item by item, adding to the sales price of the comparable for each thing
it doesn't have that your subject home has, and subtracting for each thing it has that your subject home
doesn't have.

This sounds confusing, but it will make sense once you try it a couple times. For example, if your subject
home has a second bathroom, and the a comparable doesn't, you add the value of the bathroom to the sales
price of the comparable. If a comparable home has a blacktop driveway, and the subject home doesn't, you
take the value away.

What you are doing is rectifying differences, to see what the comparable home WOULD have sold for if it
was just like yours. Suppose a comparable sold for $140,000, with one less bathroom than your subject
home, and a bathroom is worth $15,000 in your area (ask a real estate agent for help with these figures). You
ADD $15,000 for the bathroom it doesn't have. You subtract, say $4,000, for the paved driveway it does
have, that your home doesn't have. $140,000 plus $15,000, minus $4,000 gives you a comparable sales price
of $151,000.

Do this with all differences between the subject home and each comparable. Once done, average the three
comparable prices. If, for example, the three comparables now have adjusted sales prices of $151,000,
162,000, and 149,000, add the three figures and divide by three. The indicated value of the home is

All appraisal is an inexact science. You might only find comparables sold over a year ago, and have to
estimate appreciation in the area. If a comparable sold with seller financing, you have to decide how much
this affected the price. Still, for all of it's flaws, for single family homes this is the most accurate method for
finding true real estate value.

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