Determining the value of a property is not as daunting as it might seem.
Though it can be a lengthy process, yet by exercising the right amount of caution and spending the right amount of effort, this process can be simplified to a large extent. Here are some tips to help you determine the value of a property very easily as a buyer.
1. Online Research
If you search online “how much is my house worth?”, then it will reveal hundreds of estimates. These online tools called automated valuation models are often offered by real estate sites like Zillow and Redfin, which can help you in effectively determining the value of a property.
These online tools use publicly available data like records of transfers of property, ownership deeds, tax assessment reports and then use mathematical modeling techniques to predict the value of property. This also depends on recent property sales and listing prices in the given area. The AVMs used by lenders often use something called the “confidence score” to delineate how close the AVM provider thinks a probable estimate is proximate to the market value. For instance, a confidence score of 90% means that the estimate is within ten percent of the market value. These AVMs which use confidence scores are fairly accurate.
2. Using the Opinion of a Broker and Competitive Market Prices
You can also hire the services of a local real estate agent to determine the BPO or the broker price opinion. The BPO is an estimate of the agent’s evaluation of the home as well as prevalent market prices to arrive at a value. This is especially used in listing purposes. As an example in Chicago, you can find hundreds of Kale Realty listings with a valuation attached to each one.
You can also get a picture of the property value through a competitive market analysis. This technique depends on the current sale value of similar properties in the neighborhood and thus, gives a comparative picture. This is especially helpful in cases of luxury properties, the value of which is not easy to determine.
3. Using the Federal Housing Finance Agency Price Index Calculator
You can also rely on the FHFA Price Index Calculator for a more scientific price estimate. The calculator makes use of the repeat sales method and tracks a house’s change in value from one sale to the next. After that, this information is used to estimate the various fluctuations in values in a given market. This is a good way to determine if a property’s value has depreciated or appreciated over time, although the index doesn’t account for inflation.
4. Engaging the Services of a Professional Appraiser
You can also determine the value of a home through an appraisal carried on by a professional appraiser. You can approach the latter wanting to know the value of a property with respect to a past time, or even an estimate of current market values for purchasing and refinancing.
Professional appraisers evaluate the neighborhood in which the property is situated, look through the characteristics of the property, including land and then compare it with similarly situated properties. Such information from listings and sales is then combined to curate a final report which lists the home value.
5. Evaluation of Similar Properties
One simple thing that you can do yourself is looking at the prices are which comparable properties sold for, in the same neighborhood. This might be publicly available data and using such comparables might help you to make a fair decision before jumping to conclusions. However, such “comp” exercises require that you check properties for similar conditions like size, condition, location and upgrades before comparing the prices.
Properties in the same b neighborhood do not necessarily sell for the same prices; a lot depends on the furnishings and the condition of the house. Thus, doing a fair evaluation is necessary before making purchase decisions.
If you follow the tips mentioned above, hopefully, the property-valuation process will not appear so cumbersome.