There’s many tools out there for real estate agents as well as investors that will help you figure out how to determine property value, but there’s a little more to it that just pushing a button.
Any time you’re determining the value of a property, remember that it’s not a science, it’s an art!
I had a networking meeting in my office a few months ago, and had a room full of real estate investors. We did an excercise together, and the goal was to find the value of a property. We were all working with the SAME subject property and the SAME list of (about 10) comparable sales from Zillow. I gave them all the same instructions, and told them to choose the TOP 3 sales that were most comparable to their house, and closest in proximity.
Then, we calculated the average price per square foot of the sold houses, and used that as a multiplier for our subject. In the end, the results were fascinating. Although not every used the same 3 comparable sales, we all ended up being in the same price range as far as value because we followed the same guidelines when it came to selecting real estate comps.
If you choose the wrong comparable sales as a determining factor, the you most certainly will result in an inaccurate estimation of value for your property.
You’re going to learn how I teach my real estate virtual assistants, coaching students and MOB members to pull comps for their houses using everyone’s FREE website, and then enter the data into a spreadsheet that will calculate an estimate of value for the deals that they’re working on.
Don’t make any changes to the spreadsheet other than entering the comparable sales, or removing the instruction message that’s highlighted in Yellow. It’s already formatted to calculate your minimum and maximum square feet for your comps (you want to stay within 10-15% range of your subject property).
Watch this short video before you start using the spreadsheet to make sure you understand what it’s designed to do.
When selecting comparable sales for your next deal, remember some of these helpful tips:
Always throw out the properties that sold for a price per SF that was much higher than the others. You can usually look at the details of this house and figure out why they sold for so much more, but it most certainly needs to be tossed or your values will be thrown off.
Toss out the comparable sale that sold for a price per SF that was much lower than the others. This usually indicated some type of seller motivation, distress, REO, or some other underlying factor that we can’t determine from the listing information. Throw it out. It will mess up your values.
- All of your comparable sales should be close (within 10-15%) as far as price per SF.
Choose comps within .25 mile and sold within the last 6 months. If you can’t find 3 comparable sales, then go farther out in distance FIRST. Then go farther back in time. The market conditions can change over time, so it’s better to look for distance rather than time. An appraiser can actually go out 2 miles but it’s not safe for you to do that unless you’re in a rural area.
If you can’t find any properties that are in excellent rehab condition, then you must be in a rental type neighborhood. Your mission at that point is to see what investors are paying for rentals (still pulling comps, just looking for houses in similar condition to yours), and do some research on what your subject property will rent for. You’ll no longer be using “MAO” to make offers to your sellers because there aren’t any retail sales. You’ll use ROI formulas to determine how much to offer the sellers.
Determining the value of a property takes practice, just like anything else we do in the real estate business. You’ll know you’re doing a good job when your cash buyers aren’t putting up resistance about the value of a property, and you’re selling your deals lightning fast!