Determining A Home’s Value – Part 2

Comps-lets do this thing!

Since we’re looking for comparable sales to our home, let’s start by describing the PoP Family home.

Our house is a 3 bed/2 bath home with 1,110 sqft of living space. It was built in 1985 and has a 1.5 car attached garage. (Yes, 1.5 car garages exist, but just try fitting that extra half of a car in there. I dare you.) Our house has an attached in-ground pool with a screened pool-enclosure that is in good condition and was put in about 15 years ago. The roof is made of asphalt shingles, is in good condition, and was probably put on about 6 years ago. Our house is a bit unusual – one of just a handful in the neighborhood that share a pond in our backyards. In Florida realtor-speak, this is a “water view”.

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Kitty PoP hanging out by the pool enjoying watching all the wading birds in his water view. That’s worth something, right?

Our neighborhood consists of 5 small streets (roughly 150 homes total) which all have a similar look/feel as ours, and we have no HOA. About half the homes have in-ground pools, but just a handful have a water view, so there’s a good chance we’ll have to make adjustments for one or both of these aspects. Our house is one of the smaller and older in our neighborhood, so we’ll want to make sure our comp set doesn’t include ONLY houses that are much much bigger than ours.

Comparable Market Sales For Our Home

We track home sales around us our neighborhood, and there were two sales pretty recently that give us a good current estimate of home prices in our neighborhood.

  • Comp #1 is on just a few houses down on our street, and sold two months ago for $234K. This house was only on the market for a couple of weeks, so this sale price may be on the low end of what they could have gotten if they had been willing to wait a little longer. Comp #1 is a 3 bed/2 bath home with 1,640 sqft of living space, so sold for $143/sqft. Like our house, it has a shingle roof in good repair, and does not seem to have any external weaknesses. Unlike our house, this house doesn’t have a pool or a water view, so we’ll need to adjust for that. It also has a 2-car garage.
  • Comp #2 is one block up from ours, and sold for $161K about four months ago. This one was a FSBO (for sale by owner), so lacking a MLS listing and the advertising that comes with using a realtor, it sat on the market for a while (6 months?) before finally selling. The sellers were set on their asking price and never reduced it throughout the entire process. A 3 bed/2 bath 1,100 sqft home, it sold for $146/sqft, which is pretty similar to Comp #1. It was also in good repair on the outside and had a shingle roof. Although Comp #1 is pretty similar in size to ours, again it doesn’t have a pool or water view, so we’ll adjust for those. Also, this one has just a 1-car garage.

What other comps did we exclude?

In the same period that Comp #1 and Comp #2 sold, there was also another sale that might have been in consideration by someone who did not know the area as well as we do. Behind our neighborhood, there is a gated community (with a HOA). In that neighborhood there was a sale that was the same geographic distance from our house as Comp #2, however the home was a 4 bed/3 bath, 3,500 sqft house on a lot that is twice the size of ours. It had a 3-car garage and a tile roof. An appraiser who does not know the area might consider including it as it has a water view, but in our mind the gated community it sits in is just too qualitatively different from our own neighborhood to include it as a comp.

Professional appraisers will often try to get more than one or two comps, but I’m a pretty firm believer that if your comps are good, sometimes all you need is a couple. In this case, it doesn’t make sense to include sales from the high-end gated community that is adjacent to our neighborhood. So, even though we’ll have to make a few adjustments, I think this is a great comp set to work with.
Now for the math…
To figure out our starting value, we can take the average $/sqft from the comparable sales, and multiply it by the square footage of our house.

Average $/sqft = $145/sqft
Starting Value = $145/sqft * 1,110 sqft = $160,950 (call it $161K)

Now we have to consider how our house is different than the comps and make some adjustments.

Since our house had a pool and a water view that these don’t, we get to add value to the starting value. Around here, it’s pretty standard to add about $20K for an in ground pool similar to ours, and another $20K for the water view. Since we err on the side of conservative, I add $15K for each.

Even though Comp #1 and Comp #2 don’t have the exact same garage set-up that we do (a weird 1.5 car garage), the 2-car and 1-car garage would balance each other out pretty well, so I’m not going to bother making an adjustment for the garages.

But, we also have to assume the inside condition of both Comp #1 and Comp #2 homes is pretty immaculate and top of the line. (This may or may not be true, but to be conservative, we say it is.) As we wrote about before, the floors in our house could use some updating, and the kitchen cabinets are almost 30 years old, so we need to assume that someone who buys our home might subtract some of the cost for renovating those big items. That might cost $20K to do, so again, to be conservative, we subtract that.

Adjustments:

  • Starting Value: $161K
  • + Pool : $15K
  • + Water View: $15K
  • – older interior: -$20K
  • Total Value: $171K

Mr. PoP and I always try to round down the values on assets to be conservative, so we book the house as $170K on our balance sheet right now.

Is this a perfect process? No. But it gives us a pretty good idea of what the house is worth if we were to put it on the market today, and since we always like to err on the side of undervaluing assets, we round down consistently, and know there’s a margin of error.

Why go to all this trouble when there are websites that will tell you how much a home is worth?

To put it bluntly, those websites aren’t always very good. In the next post in this series, I’ll go through the values that Zillow, Trulia, and ePropertyWatch have as current values for our home – and what I think some of the weaknesses in their algorithms are. Stay tuned for Part 3!

Read the rest of our posts on determining your home’s value:



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