In this ever changing real estate housing market, properties for sale are being listed daily. These homes are being overpaid, underpaid, or going for market value. As a real estate seller, how can you find the fair house market value of your property for sale? The simplest answer is to perform comparative market analysis (CMA) to find the house market value.
What is comparative market analysis? Real estate investors and real estate appraisers conduct real estate market analysis all the time to get the market value of a real estate propertyt. They use the real estate comparables, or real estate comps, method. When determining house market value, real estate comps are considered to be the best tool. They collect criteria from properties that are sold in the area, such as square footage, neighborhood, age of the investment property, and sale price. This information will allow the owner to get the best idea of getting a fair assessment of the house market value of his/her own property for sale.
When determining house market value, investment property analysis is your best chance of getting a price that will sell your property as quickly as possible. Here are 9 rules to follow to determine a fair house market value.
Related: How Do You Find Real Estate Comps?
Stay within the Neighbourhood
When looking to compare your real estate property, it is important to compare it with a similar property. You wouldn’t compare apples to oranges, so do not compare your real estate property to one that is along the waterfront (if yours is not there). Neighborhoods differ in many ways; one may have a good schooling system but no bus route, while another may have a grocery store and a higher poverty rate. These are all factors that can affect the house market value. This is why you are encouraged to compare your property to both active and pending listings as well as to recently sold properties in your neighborhood for the best approximation.
Back to the Future
If the real estate property sellers neighborhood has a limited amount of listings at the time, it is wise to go back and check previous records of other houses that are comparable. A property seller can go back and inspect how the house market value was back then, but must factor in the change in the housing market. The housing market can have experienced inflation or depreciation, either of which will factor in the current house market value.
Make sure that when performing comparative market analysis, you keep the renovation value in mind. Try comparing your house to one that has the same amount of renovation or slightly higher, in order to get a better insight on the house market value. An investment property that has more work put into it will garner a higher return. Remember that when determining the house market value, there is a cost that goes into renovation and a value returned from such.
Square Footage Pricing
It is extremely difficult to find a house that is 100% comparable to the one that is being put on the market. That is why it is important to find what the average price is per square footage. The selling property may be a 100 square feet bigger, in which case you would have to add that to the value of the property to get a fair house market value. The same can be done if the property being sold is smaller. Subtract the value per square footage from the value of the house.
When trying to appraise a home, be proactive. Get off the computer and drive to the location. Pictures can be misleading. By driving to the location, you can gather more information about the comparables for your house and the neighborhood as a whole, to factor into your property for sale price. This will give you a more accurate house market value.
When comparing two homes, it is important to value houses that share similar qualities, especially the number of bedrooms, bathrooms, and garages. A real estate property that has 3 bedrooms, 2 bathrooms, and 2 garages can’t be compared to one that has 2 bedrooms, 1 bathroom, and 1 garage. The difference in the price between the two is too big to get a fair house market value. It is possible to compare two different size houses if one has the capability of adding an extra bedroom or bathroom to make the comps match.
When doing home appraisal, it is just as important to select a real estate property that shares similar structural attributes to yours. This means that you do not compare a wooden frame property with a brick property. To get an accurate house market value, choose a real estate property that shares the same exterior attributes as yours.
Related: Three Ways to Find Real Estate Comps
Newer investment properties will generally have lower maintenance costs and more updated, and will therefore be more desirable. An older property will have more maintenance and require more upgrades. When doing real estate comps, keep in mind the age gap that the houses have. A good general rule of thumb is to stay within 10 years within the age of your property. This allows you to get a better idea of what your real estate property compares to in a situation where you find two houses with similar attributes but different years built.
There is only a finite amount of land for us to invest in. So, a real estate property with a larger lot size will most definitely have a larger house market value. So, compare your property for sale based on similar lot sizes. Similar to indoor square footage, a real estate comparable has to be considered in the same manner. Figure out the value of the square footage of the lot size and then add or subtract the value respectively.
The real estate housing market value is forever changing, but the comparative market analysis strategy remains constant. Whether you are a beginner real estate investor or an expert, finding a house market value takes a great deal of research. The best approach is to conduct investment property analysis on similar real estate properties in the neighborhood. Real estate comps can provide a real estate seller with an accurate estimation of a house market value that is to be expected. Luckily for you, here at Mashvisor we have a great deal of knowledge about real estate properties values (and all other aspects of real estate investing) that we are willing to share with you! Visit Mashvisor for all your real estate needs!