How to Determine Property Value

You've found a property you believe is a great investment. You may be going to live there yourself, rent it out, or rehab it for resale. In any of these situations, you must know the value of the property in the market to negotiate a reasonable price.

So, how do you do the research? You can start with the internet. A search will help you find real estate sites that allow for searches based on area or zip code, house features, and other criteria. This can help you see what other properties for sale in the area are listed for.

Many people depend on a real estate agent for help. Even experienced real estate investors count on their agent to give them market value information in the process. Real estate agents have access to the Multiple Listing Service which gives them information on home prices by area including what has already sold.

One of the keys to understanding market values for real estate is to have access to the information about what has already sold. Listing prices are only starting points for negotiation. The actual sale price of the property is what the market will bear at the time.

The time frame is important, as well, because the real estate market is not static. It's important to limit your search for sold properties to no more than 6-9 months prior.

The comparable properties used to establish the value of the property you're interested in should be fairly close in age, size, condition, and geographic area. Gather data on at least four to five comparable sold properties to be sure to have enough information. From the comparables, choose the two that are the closest match in age, size, condition, and area. The sale price of these two will determine your range.

The next step is to go back to listing prices for comparable properties in the area. If the listing prices are below your sold comparables range, you'll adjust your value down. If listing prices are above your range, you'll adjust your value up.

To become more knowledgeable about market values, you can visit open houses in the areas you're interested in. Watch the newspaper for sales ads. When you have time, drive through areas you like and note the homes for sale that might meet your criteria and find out their listing price.

As you do this legwork, you'll start to get a good feel for market values and be better equipped to understand property values as you find potential investment opportunities.