How much is my house worth? How do we get our house sold quickly and for the most money?
That is by far, one of the most common questions we get as real estate agents. As an individual who has been around real estate investing almost my whole life (my dad became a professional landlord when I was in 2nd grade) it’s amazing to me how many different answers a person can get when they ask that question. Even if they are asking a full time Realtor.
And most of those answers are wrong.
I am going to let you on the best, most accepted, and most accurate ways for a person to put a value on their real property. But first let’s cover a few basics. Remember that the vast majority of real estate sales are private residences. Having said that, I intend to cover more than just that in this blog.
In the vast majority of real estate transactions (especially when financing is involved), buyers and lenders will rely on an appraisal from an outside source to verify the value of the asset they are purchasing (aka – the collateral that their loan is secured by). The appraisal is a comprehensive report that usually considers three key valuation approaches. These approaches are known as:
The Income Approach
The Cost Approach
The Sales Comparison Approach
These are widely considered to be the most reliable methods of determining a property’s market value. In most cases, an appraiser will use at least two (if not all three) of these methods to come up with their final conclusion. Here’s a quick overview of how each of them work:
The idea behind this approach is to determine the amount of ongoing income that a property can be expected to produce (e.g. – how much rent can an apartment building generate? how much could a piece of farmland be leased for? etc.). In order to determine this anticipated revenue, the appraiser will look at the “market rent” in the area. In other words, what are similar properties currently renting for in the same market? The appraiser will look at a number of similar properties (i.e. – size, location, condition, amenities, etc.) in order to get an idea for the amount of revenue the subject property can/will produce. This approach is looking at the property purely from a revenue generation standpoint.
With this approach, the appraiser is assuming that a purchaser will never pay more for a building than it would cost them to build the same structure from the ground up. The appraiser will take the estimated cost of construction (minus depreciation, plus land) and use this to come up with one perspective of the property’s market value. There are a lot of big assumptions that live inside of this particular approach (e.g. – the cost of building materials, the assumption that nobody will ever pay more than the cost to build, etc). For obvious reasons, the cost approach is an important consideration – but it’s almost never sufficient to use this approach all by itself to determine a property’s market value.
Sales Comparison Approach
With this valuation method, the appraiser will look at the recent sales data for similar properties in the area. With this approach, the appraiser is making the general assumption that a typical buyer will not pay more for the subject property than they would for a similar property in the same area. Appraisers will only consider the data from properties that have actually been sold, because these kinds of concrete numbers represent real amounts that have actually been paid. Appraisers usually find this data from various public records, real estate agents, other appraisers, etc.
For a free market valuation of your property, please contact Vince Davis at the Agents with Options ™ at 480 720-4040 or at firstname.lastname@example.org. Mention this blog post and ask about a free home warrantee to be placed on your home immediately if you list your home for sale with us!
In my next post, we will get into Residential homes. If you disagree with anything I post here, please comment below! It will make for an interesting discussion.