Determing Your Value
How do you determine the value of your home? Residential real estate is based on a market value. This means it doesn’t really matter what it costs to build a replacement. The value is determined based on what’s going on in the market around you. So, to figure out the value of your home you’d want to know what properties similar to yours are selling near yours. In real estate, this is typically known as “running the comps.” Simply put, this means getting the data for what’s happening around you with similar properties, so you can start making comparisons.
The Search – What to Look For
The first step is to find three, four, maybe five properties within some reasonable distance (the closer – the better) – that are similar to your home. What defines similar? Things like square footage, number of bedrooms, or lot size for example – something you would say is on par with your home. In subdivisions, this is very easy. In fact, many of these homes are identical in square footage because they are the same model. That makes it very easy to get an accurate assessment. On the other hand, in areas that are more rural, properties can vary dramatically. In the end, you want to get as similar a property as you can find, as close as you can find and as recently as you can find. So go back maybe six months within a quarter or half mile of homes that are plus or minus a few hundred square feet of yours. As long as you can find three, four, maybe five, you’re in a good position to start making some comparisons.
Once you have a couple of properties to compare, you can actually take them one at a time and start evaluating what’s different between them and your home. Your home would be referred to as the “subject property” in an appraisal. Since we don’t know what your home is worth – we are calculating to that one. As for the properties that have sold, we know what they’re worth. We know exactly what they have sold for. Therefore, if there’s a home that has 100 square feet less than yours, that sold for $400,000 – you can make an adjustment for that one feature difference and your property will be worth more.
The Equation – What to Do with It
You’ll start comparing the home that sold and its price – making adjustments up and down to your home. Say you have a pool, well, that’s going to be worth possibly $10,000 or $15,000 more than the identical home that sold without a pool. On the other hand, maybe you have an extra bedroom or more square footage or a larger lot (or less). It’s probably going to be more of some features and less of others. Either way, you’ll start making adjustments up and down based on the features. Then you can do this from property to property. The homes that are closest (distance), most similar, and sold most recently are probably going to be the best comps. The more like your home they are – the more closely they will be related in value. Then by making the necessary adjustments up or down you can approximate the likely value of your home.
Knowing what your home is worth is really just a matter of knowing what is selling around you and what it’s selling for. If you’d like to know what properties come on the market in your neighborhood, just so you can keep an eye on the likely value of your home we can set up a “market watch” that sends you updates periodically. It’s a free service and easy to set up. If you have any questions or want to talk about the value of your home, you can give me a call or send me an email and we will be happy to chat with you.