Determining Property Value

Home Investor Selling Rule #1

"Any home is only worth what someone is willing and able to pay for it at the time you want to sell it."

Some of the methods people use to try and establish the value of their property include:

• Applying an annual percentage increase to the purchase price.
• Adding the cost of improvements to the purchase price.
• Using the town's assessed value.

None of these methods will give a true value for the property. In fact the only way to truly determine the value of a property at any point in time is to discover what a buyer is willing and able to pay for a property by selling it. 

Like it or not, property value is governed by basic economics, no matter what value we might like to put on our homes. This is because the value of property is a function of supply and demand; the more similar properties there are that are available when matched to the demand for that type of property, the lower the value of the property. Conversely, if there is high demand for the type of property you have and fewer of these properties in supply, the price will be higher.

In order to sell a property, you need to get a pretty good idea of what a buyer will be willing to pay for your property at the time you want to sell it. In the USA, one of the best ways to do this is to get a Comparative Market Analysis or CMA. A CMA determines the value by comparing your property to similar properties in the area that have sold recently. Any good Realtor will be able to give you a CMA for your property or you can ask a local Home Investor Specialist for a complimentary CMA.

There is little point in determining the value of your property through a CMA unless you are about to sell it since the value of property can change very quickly in a matter of months. To get an idea of your property's current value, you can easily tour around similar properties that are for sale in the area. Although the listed selling price is not always a good indicator of the actual price a property will sell for, taking an average across a number of properties will be a good enough approximation.

However, if you are serious about selling, get a proper CMA or valuation done by a Home Investor Specialist or real estate professional. Once you have a CMA, you will have an idea of the range of values your property will fit between. Adjustments will need to be made to take account of variances between your property and those in the CMA. (Again, your local Home Investor Specialist can advise you on these adjustments).

Once you have an idea of the value of the property, you are ready to figure out the optimum selling price!