Home Value Update – How To Use Market Comps

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How much is this view worth?

Like we mentioned in our recent balance sheet post, we booked an increase in the value of the PoP homestead, our primary residence. This is the second increase we’ve booked since we originally wrote our original series on determining a home’s value, so I thought I’d do a bit of a condensed update on how we use market comps to keep track of our home’s value.

 

Step 1 – We Ignore Zillow

Though it’s calmed down in the past couple years, Zillow was more than somewhat schizophrenic in its home valuation numbers during the Great Recession a few years back.  (Think bouncing between $120K and $180K in a week and back again.)  I’m prone to distrust auto-valuation sites like Zillow (and Trulia and others) because they tend to assume that every house follows the same central tendencies.  In reality, neighboring houses might have very different features so while some aspects might be fit for comparison, the differentiating features get lost in many of these algorithms.

In short, these algorithms are good at quantitative analysis and overarching trends, but less good at the qualitative aspects of home-valuations. So if you live in an area where the homes are not exact replicas of one another, these kind of auto-valuations are probably going to be more error-prone for you.  Instead, you should use market comparable sales analysis, also known as “comps”.

 

Step 2 – Find Comps

What Are Comps?

They are comparable home sales that have happened recently in your neighborhood. The idea goes that if your neighbor’s home is a lot like yours and just sold for $200K in an open market, then if you listed your home you’d be likely to get $200K in that same open market. Your ideal list of comps will contain sales of homes of similar age, size, and condition to yours that have taken place within the last year in your neighborhood.

Where Can I Find A List of Recent Sales?

While a realtor can get you a list of recent sales in your area, and you can keep track of the “For Sale” signs around the neighborhood, there’s actually an even easier way to get this list on an ongoing basis so you don’t have to continually bug your realtor friends.

I use a free site called ePropertyWatch. Free is great, but right now it only allows you to register one house per email address and does require that the house be yours, so it does have its limitations.

When you register your house and email address on ePropertyWatch, it creates an alert where you will get emailed whenever there are foreclosures or recent sales in your area.

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Like this one. Then you click through and see where the sale happened.

 

Step 3 – Add Them To Your Spreadsheet

Once you know where your home sales are, you can cross reference them with your county’s public records database, usually run by your county property appraiser. We also like to do a walk-by and take note of anything major that might be worth noting.
Then I fill in my spreadsheet where I note:

  • Sale date and address
  • Sale price, livable square feet (in FL we call this “under air” area, and it doesn’t include area for garages, patios, or Florida rooms
  • Features of the property like beds/bath and features that add value like a garage, a pool, jacuzzi, or a waterview

These are pretty common Florida features that I saw our appraiser use on our property, as well as our county property appraiser use when we fought our property taxes.

 

Step 4 – Apples To Apples Deconstruction (aka Spreadsheet Magic)

In order to compare homes that have different features, you need to first strip the values of the features out (for us, we use $10K for each car the garage holds, $20K for a pool, $5K for a Jacuzzi, and $25K for a lakeview – values taken from professional appraisers in our area, yours may differ), and arrive at a price just for the structure.  (So for a 2 car garage, you’d subtract 2*10,000, but for a 1 car garage just 1*10,000.)  Then you divide that by the livable area, and you get your price per square foot ($/sqft) for the bare structure.

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For our example, you can see we stripped off some one- and two-car garages, and one pool in our comps, and arrived at a mean price of $158.72/sqft for our six comps sold within the last 12 months in our little neighborhood.

 

Step 5 – Rebuilding Your Home (Value)

Multiplying the mean price per square foot by your home’s livable area gives you a price for the base structure of your home. For us, that’s:

$158.72 * 1,110 sqft = $176,177

But we need to rebuild the features of our home. So we add back the value of our 1.5 car garage ($15,000), then the value of our pool ($20,000), and the value of our waterview ($25,000).

$176,177 (structure) + $60,000 (features) = $236,177

But because we know the interior of our home is in need of some work (namely most buyers would want to tear out our floors and install new kitchen cabinetry while they are at it), we also subtract off a discount that feels “reasonable” for this. Our “reasonable” discount for the interior of our home relative to the largely unknown interior conditions of the homes on our comp list is $20,000.

$176,177 (structure) + $60,000 (features) – $20,000 (condition) = $216,177

 

If it sounds a little hand-wavey at times, it is. Valuation by comps is a bit of an imperfect science that requires some solid estimating skills and then a big bite of humble pie. It’s the humble pie that reminds us to discount known imperfections in our own home, and then again to round down. Which is why we recorded our home’s value at:

$215K.

 

I know comps valuations tend to intimidate a lot of people, but once you get in the groove of updating your spreadsheet (which ePropertyWatch’s friendly email reminders keep you on top of), it’s actually REALLY easy to keep your spreadsheet updated as new sales come in.  And it’s probably a LOT more accurate than Zillow estimates.  =)

 

Any questions on market comps?  Have you ever used ePropertyWatch to track home sales in your area?  Anyone willing to give tracking their own market comps a try?

49 comments to Home Value Update – How To Use Market Comps

  • Real estate has been creeping back up in my area. There were at least 5 or 6 houses for sale in my neighborhood and they all sold for more than I thought they would. I hope it stays that way if we choose to sell in a few years!
    Holly@ClubThrifty recently posted..Secret Formula Revealed: How I Keep My Expenses LowMy Profile

  • A very detailed post on how to use market comps. You always need to be updated and know how much does your residence value in the current trending market. This can give you a good insight if you are planning to sell it in the near future days. Keeping an eye on market can strike a good deal for you
    Rita P @ Digital Spikes recently posted..How to get rich quick tips and actionsMy Profile

    • That’s a big part of why we keep track, to know where the market is trending to have a baseline when things get listed below market!

  • I don’t update the value of my properties, to me they are only worth what someone is willing to pay on the day I am willing to sell. If you are riding at the high of the bubble your house may be worth much more but you sell during the crisis and only get half.
    Pauline recently posted..Graduate College Debt FreeMy Profile

    • True, but when values drop, we’ll be sure to update those, too. In fact, I probably won’t delay updating the drops as much as I have the nearly unbelievable gains we’ve had this last year.

  • Let me just reiterate that Step 4 is SO important. We just found out that when we bought this place last Oct., that the appraiser, in no way shape or form used apples to apples comps, and our house is, in reality, worth much less than we paid for it. We trusted him, the mortgage company, etc., but have since learned that you should always do your own due diligence, including scrutinizing the appraiser’s comps to make sure he’s being honest/knows what he’s talking about.
    Laurie @thefrugalfarmer recently posted..How to Pay off Debt: It’s About More Than BudgetingMy Profile

    • Ooof. That doesn’t sound good at all. And what’s worse is that you generally don’t get to pick the appraiser, the mortgage company does.

      What kind of stuff did the appraiser miss in the comparison?

  • Cool breakdown. This is not something I have any experience with but I’m definitely bookmarking it for when I need it later. I really like that you take an honest look at any deficiencies in your property and adjust accordingly. That’s a step that many people probably overlook.
    Matt Becker recently posted..5 Tips For Traveling With a BabyMy Profile

    • I think accounting for deficiencies is an absolute must. After all, when we bought the place we negotiated based on every little deficiency we found. We’d expect nothing less if we were to sell it!

  • We’ve bought and sold many, many homes and knowing what its worth is extremely important. Especially lately, we’ve received a lot of low-ball offers. We usually negotiate for a day or 2 and then the realtor advises us to “just take the offer.” No thanks Mr. realtor. We’ve always received the money we wanted. Sometimes, it takes an extra month or two, but its always been worth it.

    One minor point of correction: 99.8% of folks confuse schizophrenia with multiple personality disorder. They are actually distinct illnesses: http://voices.yahoo.com/understanding-schizophrenia-vs-multiple-personality-8265689.html
    Mr. 1500 recently posted..Performance Update 7 of 50: Oh my, July!My Profile

    • Thanks for the education, Mr 1500! Perhaps bipolar disorder would have been an even more apt comparison? Intermittent episodes of mania and depression?

      I believe I’ve read that when realtors list their own houses for sale, they generally stay on the market a month or two longer than non-realtor owned listings. 97% of the marginal gain from that month is worth it to them, but 3% is generally not, which is why they prefer the quick close… not too shocking, I suppose.

      • “I believe I’ve read that when realtors list their own houses for sale, they generally stay on the market a month or two longer than non-realtor owned listings.”

        Yep, I’ve read the same thing. A realtor’s goal isn’t to sell you home for the highest price, its to sell your home before you give them the boot and hire a different realtor. If you think about it, their comission doesn’t change much if you sell your home for 185K instead of 200K.
        Mr. 1500 recently posted..Smarties Cereal ReduxMy Profile

  • that’s a really impressive way of finding out mean home values! We’re quite a few years away from buying but I’ll definitely be using that formula to ensure when we buy that we’re not overpaying.

    Also, you know real estate is going up when you live in a neighborhood like mine in Brooklyn which had previously abandoned brownstones that are now selling for 7 figures.
    Tara @ Streets Ahead Living recently posted..Too much time on my handsMy Profile

    • Is that a piece of cheese on a cat’s face in your profile picture? haha! okay, sorry for the random side bar.

      New York real estate continues to baffle me. WSJ had a series a year or two ago on a family restoring a brownstone and the amounts they were spending (and calling it “a good deal”!) were insane!

  • I find that zillow home estimates are worthless. Last week they showed our condo worth about $75,000 more than it really is worth.
    Sean @ One Smart Dollar recently posted..How to Make Extra Money OnlineMy Profile

    • That’s crazy. Condos should be pretty easy to keep track of the value on your own since most of the units are pretty comparable. Have you ever taken a look at ePropertyWatch to keep track of sales in your condo development?

  • This our first property and I dont really care what it is worth since I don’t plan on taking out any loans or selling it anytime soon. This could be something really valuable as I am looking to get into real estate and want to know how to get values of homes done. Never used this before though. Well surely check it out.
    Thomas | Your Daily Finance recently posted..The First Step Toward Becoming a Real Estate Investor… It’s a DoozyMy Profile

  • When we bought our house we used Trulia, Zillow, and a few other off name sites to determine a somewhat baseline of the houses we were looking at but never used any of the figures as hard numbers. We used HER Realty and their MLS system offered comps based on real world evaluation then auto evals but for establishing a baseline the automated system wasn’t bad.
    Adam recently posted..Do The Side Hustle Baby!My Profile

    • Auto-valuations for a baseline or a ballpark can be useful, but I’m a big believer that they need to be taken with a big grain of salt, and before any decisions get made have a full valuation done stripping everything down “apples-to-apples” and going forward from there. Hopefully that’s what your realtor helped you get after the auto-valuations =)

  • I really hate zillow for valuing houses. Its saying that our house was worth more during the housing crash that it does now which is ridiculous when considering the latest sale in my area. Thanks for the tips. I am going to check out that website out.
    Debt and the Girl recently posted..A Great Organization and Some Link LoveMy Profile

  • I don’t trust Zillow either! For the longest time they listed my house as not built yet.

    Actually, I just checked my “Zestimate” just now and my house is still not there.

    Anyways, I love how in-depth this analysis is! I’m gonna look into ePropertyWatch sometime in the near future.
    Lisa E. recently posted..Who Wants to be a Millionaire?My Profile

    • Yeah, zillow is super weird on the neighborhood our duplex is in, too. Sometimes it lists two values on a duplex even though they’re only one property. It isn’t very good at distinguishing multi-family from single family units.

  • We still use the lazy approach of Zillow when plopping it into our net worth figures, but as we’re not planning to sell the home (want to keep it as a rental or future “retirement” home) I suppose there isn’t any immediate harm.

    I’m interested in getting a more accurate view via comps, but it sounds like it’s a bit of work…
    Done by Forty recently posted..Fantasy Football Trades & Behavioral EconomicsMy Profile

    • To set it up, it’s a little bit of work. Make a spreadsheet (or if you want, shoot me an email and I can send you ours), find the county property appraiser’s website and bookmark it (that’ll be the best place to double check features and specs of the houses), and sign up for ePropertyWatch. Once that’s done, though… the maintenance part is really easy.
      I get an alert about once a month from ePropertyWatch, and about once every couple of months it’s a sale in our immediate neighborhood (we have non-comp neighborhoods nearby that ePropertyWatch emails about, but I largely ignore those) so I hop over to the property appraiser’s site and fill everything in for the good comps. Altogether it’s maybe 5 minutes every couple months?

  • I’m glad yall mostly ignore Zillow. It seems like it just varies completely and isn’t always accurate.

  • We just ask our realtor who also will send us the listings that have sold in our neighbourhood with all the prices and specs. We didn’t make changes to the potential listing price of our home in our net worth simply because if it did go down as potentially though we wouldn’t take too much of a hit.
    canadianbudgetbinder recently posted..July 2013 net worth update (+1.00%): UK exchange rateMy Profile

    • I’ve asked our realtor for recent sales in our duplex neighborhood since ePropertyWatch doesn’t work there, but I like that I don’t have to hassle her for every little sale in our own neighborhood to keep track. =)

  • Our house now is in an area that is so lightly trafficked that it’s difficult to find reasonable comps…however, our rental house is perfect for this. Right now I’m lovin’ the Zillow approach because it says the value of my house is up 35% in the last year. Are you trying to break my euphoria by telling me that my house might not be worth a third more than it was last year? 😉
    AverageJoe recently posted..Barnum & Bailey Meets Yahoo!My Profile

    • You living out in the middle of the desert, Joe?

      35%? Solid! There are some areas in Florida that actually showed 30% YOY growth as they were coming out of the depths of the housing crisis, but that kind of growth is WAY easier to accomplish when the prices had fallen about 80% (or more) from their market highs.

  • I agree that ignoring Zillow is good advice – but I had never heard of the ePropertyWatch site, so thank you for sharing that! Going to be checking that out later today :) Thanks again!
    Kali recently posted..An Open Letter to Millennial Cable SubscribersMy Profile

  • Karen

    I can’t use the service. My county apparently does not participate.

    • Well that stinks. Have you ever messed around in your county’s property appraiser’s site? I think the more open the appraiser’s database, the more likely that ePropertyWatch grabs the data.

      • Karen

        I thought I didn’t know how to sign up LOL I tried 3 other addresses and all failed (including 2 different states). I just tried removing the zip code and it worked so kept trying with my own address and tricked it into accepting my address =)
        Thought it odd that my county wasn’t included; it’s not rural.

  • Great analysis and spreadsheet magic as always… I’m so jealous at housing prices in FL, especially with that great view and your beach pics. We concur with your Zillow thoughts, but we’ll check out ePropertyWatch – thanks for the tip!
    anna recently posted..Recharged in SeattleMy Profile

  • What a great way to work out the value of your home. I’ve used a website called Zoopla in the past which details the sold prices of houses in the UK. It’s interesting to see how much the neighbours purchased their houses for! Not that I’m a nosy neighbour or anything!
    debtfreeoneday recently posted..A little perspective goes a long wayMy Profile

    • I’ve never heard of Zoopla – but I don’t think there’s anything wrong with being nosey about stuff like that. =) At least in our country it’s all a matter of public record, though I imagine that’s probably not true everywhere.

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  • Epropertywatch is a great site that it can creates an alert where you will get emailed whenever there are foreclosures or recent sales in your area.