What is it worth?
That is a question I get asked a lot.
Sometimes I can do a little quick math in my head and come up with a ballpark number. Most of the time my default answer is that I need to study the recent sales….AKA “The Comps.”
When the market was flat, it was easier to do it all in my head. I could think “Oh, I sold that house over there a couple years ago, and I remember showing that one down there last year and it sold for this much.” The past couple of years the market has been appreciating so much that the best answer is to look at the comps. When values are going up (or down) you should always look at the most recent sales to determine value. It’s a big purchase for a client and they need an agent who will put in the time to make sure they don’t over pay.
I love studying the comps.
Some times they are easy. Like in a newer neighborhood developed by a mass builder. Most of the houses are the same age and in the same condition. It doesn’t take long to come up with a pretty accurate value.
It gets harder when the house is more unique. Like an older house where every house in the neighborhood has a different floor plan, and all are in varying conditions.
I think the most challenging ones are rural properties. I LOVE rural properties. Part of my reason for enjoying them so much is purely selfish. I love driving out in the country so it is always a treat just to get there. It is also interesting to see these properties, whether listing them or working with a buyer. No two are alike. Also, there is a relationship between the house and the land that must work. I often have buyers who like the house but don’t like the land, and the other way around. That is why I always try to depict both when I list rural properties. I know that is important to the buyers.
Here are some of the things I look for when determining value for rural properties:
- Location-The closer to the subject house the better. This can be a challenge because there are fewer properties and fewer sales in the country.
- Age-You often find a wide range of ages in the country, which also means a wide range of floor plan types. If I have a mid 90s house that I am trying to find the value on, I try not to use a brand new house or one from the 1960s even if they are next door.
- Lot size-The closer in size to the subject house the better. If I’m trying to find the value of a house on 1 acre, I might use houses on up to 3 acres. If I have a 5 acre lot, I might compare up to 10 acres. Most 1-10 acre buyers just want to be in the country. Most 1-3 acre buyers just want a big yard. Some 5-10 acre buyers have horses or need that space. Over 10 acres and you are often looking at somebody who wants a working farm.
A good rule of thumb when using recent sales to determine the value of a property is the fewer adjustments you need to make, the more accurate the value will be. Looking at the comps is really studying buyer behavior. You are saying a buyer paid this much for this house, and the house I’m trying to figure out the value on is 300 square feet bigger, so it should sell for the same price PLUS the value of that extra 300 square feet. That is why beginning with the best 3-4 houses is key to ending with an accurate value.
I showed a house last night to some friends of mine. They asked what I thought it was worth. I pretty much told them everything you have just read. When I went to look at the recent sales this morning, I found 3 houses on the same street that had sold within the past year that were all on similar sized lots, and were similar sized houses that were all built around the same time.
Sometimes comping rural properties can be easy too I guess.