This is a follow up article to Determining your home's value in today's market - Part 1. What is the value of my home? I get that question often.
Location is primary consideration for determining the value of your "subject" property. Unless a property is in a rural area, I rarely use a comparable that is located more than a mile away from the one I am valuing. My preference is to stick to homes in the same neighborhood or condo complex as the subject property. A home in the same neighborhood typically are of the same age and construction quality. However I always at least check out what is happening in surrounding neighborhoods simply because prospective buyers are typically looking in those other neighborhoods as well. Appraisers normally use 2 comparables in the subject property's neighborhood and 1 outside of it.
The next most important consideration is the house's size. The preference is to keep the heated square footage of your comparables within 15-20% of the subject house and the bedroom & bathroom count the same as the subject house. The closer in size the comps are the better. Properties outside of these ranges are marginal comparables at best. A 3 bed / 2 bath home might only be worth a few thousand dollars more than a 3 bed / 1.5 bath, but the smaller home typically attracts a smaller family so you might just be comparing apples to oranges.
The amenities that I typically come across are a swimming pool, a fireplace, a garage or carport, an oversized or corner lot, or waterfront. These items tend to have the most affect on the home's value. In particular pools, garages, and water can greatly affect the home's value and the type of buyer the property will attract. Appraisers make adjustments for these items, but my personal preference is to avoid using comparables if they don't have similar amenities to the subject property. I would rather spread out greater than a mile from the property than use a comparable with different amenities.
Other factors I take into consideration when valuing a home are the short sale and REO (bank owned) properties. I don't like to use these foreclosure listings as comparables, and appraisers are supposed to not use these for the most part. However you must be aware of these simply because potential buyers are going to be looking at them. In many neighborhoods short sales and REO's are the majority of the sales, so these homes cannot be ignored.
Another factor is the property condition. If all the comparable homes are junkers and your subject property is in great condition this has to be factored in as well. I would try to expand my search area rather than to try to compensate for a junker in my comparison.
Yet another factor to consider is external issues. If a comparable property is located on a busy road or train tracks, next to commercial property, backs to high power lines, or is near the eyesore house in the neighborhood, then I would avoid using it. And if your subject property has one of these external factors, you might want to think long and hard before you consider buying it. I guarantee you that your prospective buyers and tenants will take those external issues into consideration.
The last factor that I take into account are the "active" home listings in the area. Even though an appraiser can only use closed sales for appraising your home, your buyers are going to be comparing the other active listings in the neighborhood to your asking price. Even if you have the prettiest house on the block, if all the neighboring homes are priced less that will affect what you can sell yours for. When the market was plummeting in value, the active listings were a much better indicator of value than were the recent sales. In fact using comparable sales that are more than 60 to 90 days old is usually a big mistake in this market. Values seem to be constantly changing.
If you do need help determining a property's value or even if you want a professional marketing strategy developed to get your home sold, feel free to contact me for assistance. I will be glad to give you some guidance.