Real Estate Value by realestatetips4u


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                                      Real Estate Value

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 sales.

Real Estate Value 101

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 $154,000.

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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