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Calculating Property Value:
Comparative Value Method
Home sellers and buyers are often puzzled by the different prices that "experts" quote for the same house.
When you get a "lead" on a new property for sale, you may know only what the owner is asking for it. And what the owner is asking may not have any relation to what you should invest in that same property.
One simple way to calculate what a buyer would pay, and thus the real value of the property, is to take the average of houses of:
similar size and amenities,
similar condition,
within 1/2 mile and similar neighborhood,
that have sold within the last 6 months,
and add to or subtract from that number according to the future estimated value of that property.
This average is called the "comparative market value" or "cma" or "comps."
Example.
Here is a lead from a super real estate agent, Kemper Davis.
<http://alamls.net/MAARReports/listings.asp?ID=1314980757>
245643 6718 Spivey Ct, Montgomery, AL. $95,200
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The Multiple Listing Service number is 245643.
This is the reference number that all real estate agents in the area will use as they try to sell this property.
6718 Spivey Ct, Montgomery, AL is the street address.
$95,200 is the current price that the owner is asking for the house.
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Double-clicking on the "Detail" or "View Your Property Report" button will show you more details on the house.
MLS#: 245643m Status: Active LstPrce: $95,200
Addr: 6718 SPIVEY CT SqFt: 1,854/OTH
MONTGOMERY, AL 36116
County: Montgomery Beds: 4
Area: 9 MONT-SE Mont/W of Taylor & McLemore Baths: 2/0
Nbr/Com: BRIGHTON ESTATES YrBlt/Src: 1979/OTH
NewCst: N CmpDt: FloodIns: NO
LotDim: 41.2 X 176.6 Acres: +/-
HOAFee: ArchCon:
ElemSch: Brewbaker Middle: Brewbaker High: JeffrsnDavis
AprValTy: $/ LseEnd:
ParcelID: 03-09-09-30-03-008-017000
Legal: BRIGHTON EST 5 LOT 17 BLK H PLAT BK 028 PAGE 138
Dir: I85N TO US 231 S-, L ON VAUGHN RD-, R ON EDINBURGH DR-, R ON E ABERDEEN DR-, L ON W ABERDEEN DR-, L ON SPIVEY CT
------------------------------------------------
Room Type Lvl (floor) Dimnsns
BR Main 1
Bedroom 1
Bedroom 1
LivingRm 1
Kitchen 1
Bath 1
Bath 1
Parking: DVWY (Driveway)
Design: 1 Story
Construction: Brick
Foundationn: SLAB
Warranty: None
FirePlace: 1
Management:
Sewer: Public Sewer
FeeIncl:
Water: Public Amnties:
Water Heater: Electric
Accounting Terms: Conventional, FHA/VA
Energy: Possess: At Closing
Utilities: Electric Power
Heat: Central Gas
Cool: Central Electric
Floors: WWCA
Bath:
Kitchen:
Interior:
Exterior: None
Assumptions:
ExistFinancing:
Payment Includes:
Assume Loan?: N 1stMoPayment: 1stMortgAmt: 1stIntRate: 1stRemaining:
Total Payment: 2ndMoPayment: 2ndMortgAmt: 2ndIntRate: 2ndRemaining:
================================
Answer the below questions to test your understanding of the below summary:
How many bedrooms and bathrooms does it have?
How large is the house?
When it was built?
What is the construction and foundation?
What is the area and community?
--------------------------------------- For 6718 SPIVEY CT, MONTGOMERY, AL 36116 ---------------
With that information, you can now search for recent sales in that community to see how much comparable homes sold for.
There are several sources (I include several because they always report different results):
**http://www.zillow.com/search/Search.htm?regionId=32931
**http://www.RealtyTrac.com
http://www.realquest.com/investors.html
http://www.trulia.com
http://www.domania.com/valuecheck/index.jsp?resourceid=220558
**http://www.homegain.com/
The best source of recent and reliable data is from a real estate agent using the MLS system.
1. RealQuest.com results.
2273 E ABERDEEN DR, MONTGOMERY, 36116, SFR 4 -- 1,991 $124,546
2320 BRIAR GATE DR, MONTGOMERY, 36116 , SFR -- -- 1,780 $267,715
2072 EDINBURGH DR, MONTGOMERY, 36116, SFR -- -- 1,898 $120,000
We throw out the $267,715 number as it is too far out of line. the other two average to a sold price of: $122,273.
2. zillow.com results include the distance away.
6708 Sansone Ct, Montgomery, AL 36116. $141,700
2320 Briar Gate Dr, Montgomery, AL 36116 $134,900 06/27/2007 0.36 mi
This is better since it gives distance. Average price sold is $138,300.
3. http://www.homegain.com/ (most number of comparable houses for this address--20 houses listed within .5 mile)
2273 ABERDEEN DR E 0.12 mi $130,546 7/23/2007 1960 sq ft 1978
2320 BRIAR GATE DR 0.19 mi $134,900 6/27/2007 1766 sq ft 1988
2072 EDINBURGH DR 0.40 mi $120,000 7/9/2007 1786 sq ft 1975
This gives distance, size, year built.
Average sales price: $128,482. $117,000 includes all 20 houses within .5 miles.
But notice that there are three different prices given for 2273 Aberdeen Dr. and two different prices for 2320 Briar Gate Dr.!
The house at 6718 Spivey Ct is a 4 bedroom, 2 bath, with 1854 square feet, built in 1979. The asking price is $95,200.
The size and year built is similar to the others listed here.
The above comparable homes all merge together (but especially those from www.homegain.com in this instance),
to show that the asking price of $95,000 as being between 70 and 80% of the average sales prices of the comparable houses in this timeframe.
This is within the range that is of interest to me.
The next step is to call the owner or agent and ask for more information.
When I call, I will ask about big expense items: how old is the roof, what repairs are needed to bring the house to brand-new showhouse condition, are there any known problems, etc.
I will also ask about the amount of loan remaining to be paid.
If the loan amount is more than the market value of the house, it would take a "short sale" or other discounted loan process to make the deal work. If the loan amount is less than 70% of the after-repair value for that house, based on recent sales of similar houses, then there is room to discuss ways that the owner and I can help each other in the sales process.
If things still sound ok, I will make an appointment to look at the house, giving close attention to my comprehensive list of repairs needed and the type of a home warranty that I could purchase without attending to all of those repairs.
Then I will look at other houses in the neighborhood, comparing them against those listed above.
For instance, I will look at both the 2273 and 2320 Aberdeen Drive houses, from a walk in front of these houses, since they are a very similar in location, size, amenities and price. If their condition is the same as the house at 6718 Spivey Court, then I will guess that the insides are also similar, and that the market price would be similar.
For me, my main task is to find out if the price of the target house can be negotiated to fall below 70% of the comparable market value of similar homes in that same location. If the target house price cannot get below 70% of the comparable market value for similar homes, then I will not spend any more time on that house unless I have more information to show that it is worth more than the comparable houses in that same neighborhood.
I will also investigate to learn if there are any issues with pollution, zoning, right-of-way easements, and liens or encumbrances showing that the house was used as guarantee for debts that must be paid before the house would belong to a new buyer.
Every issue that would have to be paid for in order to safely rent or re-sell the house at some point in the future would have to be subtracted (discounted) from the amount I could pay for the house.
If I plan to rent or rent-to-own the house, I need to know the maximum amount I could rent the house for to get it rented quickly in that location, and I need to know the minimum amount I would have to rent it for in order to pay all of my own expenses--above and beyond the amount of interest I could earn on that same amount of money if I would instead choose to invest the money in a government-backed bond with a 100% guarantee of payback. If I could buy a government-backed bond for ten years that paid 5% interest, then an investment property that I wanted to buy would have to earn me more than the 5% interest I could make in a bond.
If the house can be purchased at less than 60% of the after-repair (and appropriate deductions taken) value of that house, based on sales prices of similar houses, I will pull out two copies of a blank Purchase and Sales Agreement and agree to buy the property.
If you find a better online way to quickly estimate the comparable sales, please let me know!
Jon Gresham
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