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Determining Property Value

Written by Than Merrill

The increase in foreclosures and short sales have made it increasingly difficult to determine the true property value of a subject house. A home bought at a severe discount is difficult to comp because appraisers are having a tough time determining how much of the discount was a result of the market. Each property and situation has to be viewed on its own merit. This does not mean that you should not look at your area for comparable sales, but with the market constantly changing, the value is always changing.

The tried and true standard for determining value has been, and always will be, the location. The closer and more similar comparable sales are to your subject property, the more reliable the value is. There can always be adjustments made if there are amenities featured in a house, but the closer to your property, the less it varies. Properties over a mile away make it much more difficult to determine an appropriate value. You may think that buyers will look at a similar property two miles away, but that may not always be the case.

In addition to location, the next best comparable relies on the square footage of a property. Most appraisers will compare properties that are within 20% of the subject property, but if there are no sales in the areal, the criteria can vary. Square footage is a good indication, but not all square footage is the same. There may be some in an unfinished basement or some calculated in rooms that do not have a great appeal,such as a small bedroom or office. The layouts of your comparables do not need to be the same, but you should look at real, livable space.

More important than the size of the house, is the number of bedrooms and bathrooms it contains. It is common sense to determine what a bathroom is, but a bedroom may not be so cut and dry. This is why it is important to physically see every house that is compared to yours, if possible. There may be a 300 square foot room that is being sold as a bedroom. This could make a $20,000 difference in price in the right location. Most realtors define a bedroom as a room with a closet, but not all realtors and not all appraisers will do the work and look at the size of each room.

A new fireplace, deck, pool, upgraded appliances and other amenities can affect your property value. Be careful not to add too much value to items that not every buyer will want. You may think you are adding value by adding something to your home, but it never comes back to you dollar for dollar. Trust the actual sales in the area and use them as your guide. The longer you go away from the sale, the less weight it holds. It is easy to assume your value will be there, but for every positive you find in your property, there are buyers and realtors who are looking for negatives to bring the value down. Stick to actual sales and rely on the fundamentals when determining your value.