How do you determine the value of a property?
Determining the value of a property is a crucial part of buying, selling, and investing in property, so how is the best way to do this? How do you do it?
There are actually many factors to look at when estimating the value of a property. It is both an art and a science. Some, websites have tried boil this down to instant, automated valuation tools. Most of these don’t work very well, or accurately. Zillow is the most notorious example; with the company’s CEO selling his own home for 40% less than the Zestimate, or about $750,000 under the value his own platform provided. If you really want to know what a property is worth you have to dig deeper into the facts about the property, ensure you have the most up to date information, and even factor in why the property is being bought or sold.
The 3 Types of Valuation
There are three main ways of appraising real estate:
- The cost approach
- The income approach
- The comparable sales approach
The cost approach calculates how much it would cost to rebuild a given property today. The income approach is typically used for investment property, and determines value based on the income the real estate can produce. The comparable sales approach is most commonly used for single family residential property, and determining a market value based on the sales of comparable properties.
Factors Considered in Determining Property Value
When it comes to assessing property value, the deeper and more detailed you are, the more accurate your estimates.
First and foremost is location then there are other important considerations to factor in·
- Square footage
- Number of bedrooms
- Number of bathrooms
- Property condition
- Lot position
- Community amenities
- Age of the property
- Special features like swimming pools
- Proximity to recently sold properties
- Terms of a sale (i.e. financing used, seller contributions, repair credits, or Realtor rebates)
Where to Find the Data
There are a number of places to find the above data:
- Real estate brokers
- Tax records
- Building permits
- Driving neighborhoods
- Title companies
- Home inspections
Clearly there is a lot that goes into determining the value of a property. Still, with as much as there is on the line when buying, selling, and investing in real estate, it is worth being detailed and achieving due diligence and clearly researching when assessing value of a property.