Approach 1 is the comparable sales approach.

Step 1: Find out the price of similar homes.

It is not always possible to find recent sales of similar homes.  In that case I find homes that have recently sold which are as similar as I can find in location, size, age, lot size, condition, upgrades to the house & landscaping.  In the industry, these other similar homes are known as “comps”.

Step 2:  Adjust value.

I then compare location, size, age, lot size, condition, upgrades to the house & landscaping of the “comps” against the property for which I’m finding a value.  For instance, a remodeled home will add value, and a less desirable location like backing up to a freeway subtracts value.

Step 3:  Adjust for the current housing market.

I then adjust the value based on the current state of the housing market.  For instance, if a “comp” sold four months ago, I would increase the value due to the recent appreciation of the housing market.  The opposite was true a few years back, when prices were falling.

By following the above three steps, I arrive at a home’s current value.

Approach 2 is the “price per square foot” approach.

Many people think that the way to calculate value is to simply take the price per square foot of home A & multiply it by the square feet of home B. However, this won’t give you an accurate value unless the square footage & lot size of both home A & home B are the same.

Instead, to get an accurate price per square foot value, the “lot value” needs to be removed from the both home A & home B before figuring out price per square foot.  After figuring out “price per square foot” of home A (after subtracting lot value) multiply the “price per square foot” by home B’s square footage.  Finally add the lot value back in to get a value.

In summary, to determine a price using this approach, I first determine the value of the structure, and I then add back in the lot value.

Finding the value of a house though “comparable sales” approach is a much better approach, provided that similar sales data is available.  Appraisers use this method as a first option as well.

However,the very best way to determine the value of a house is to call an expert like me to give a free value analysis.