Our $50K Duplex Is Worth $97K – Why? Part 1

Until recently, we’ve been carrying the duplex on our balance sheet at a market valuation of $70K.  But a couple of weeks ago, we updated our October 2012 Balance Sheet and revised the duplex’s value to $97K because we updated the market comparable sales.  The next two posts are the explanation for that update.  Consider this a little mini-series, and it’ll go something like this:

Also, in case you’re new to the blog, there’s a little bit of backstory to the duplex that you might want to catch up on by reading our How We Bought A $50K Duplex series.  It was a heck of a ride buying it, and we documented it pretty well in those posts.  But if you want fewer funny pictures and more cold hard numbers, let’s take a look here.

 

Finding Comps & Calculating the Value from Price/Sqft

Market Comparable Analysis Review

The basic idea behind market comparable analysis is that you can figure out what your property is worth by analyzing what similar nearby properties have been selling for.  Since houses are less liquid in terms of being an investment as compared to something like a stock share, this is a way of determining what your house might garner on the open market without having to actively try to sell your house.

To go through some of the basics of market comparable analysis, feel free to check out another one of our post series, Determining A Home’s Value that we posted when the blog was pretty new.  (Even if you’re a regular here at Planting Our Pennies, there’s a good chance you missed this post as it was that long ago!)  That series goes through the basic concept of what a market comparable sales and analysis are, then has a thorough example of how we calculated the PoP homestead’s market value (another one that’s due for an update pretty soon after recent sales), and lastly goes into a little of why Zillow sucks when it comes to its automated valuations.

Onto the meat of the matter for the updated duplex value.

 

Step 1 – Find Your Comparable Sales

There are many ways to find data on recent comparable sales.

  1. Pay Attention – This works best if you live in the neighborhood and can just pay attention to “for sale” signs.  When they disappear, look up the sale in your local property appraiser’s website for all the details on the sale.  It’s all public record.  We don’t live in the duplex’s neighborhood, so this doesn’t work all that well for us.  
  2. EPropertyWatch – This is a fantastic service that will email you recent sales and foreclosures in your area, but you have to subscribe as a homeowner in the area.  Alas our duplex’s neighborhood isn’t in their database, so we only use it for our main house.  
  3. Check Zillow – Yes, I know I just said Zillow’s auto-valuations suck, but sometimes their sales data can be okay.  Use their search functions to look for recent sales in your area, then cross reference them with your property appraiser’s website for accuracy since sometimes Zillow data-mines the wrong fields.  For example, Zillow says there are over 1,800 recent sales in the neighborhood of our duplex, all of which are single family.  Clearly it’s misclassifying duplexes and other multi-family units as single family homes, and I’m not about to sort through 1,800+ of them to see which are good comparables or not.  
  4. Ask a Realtor – Realtors have access to the MLS listings that not only include properties that are currently for sale, but also include closing data on recent sales.  They don’t make money doing this, but most are willing to do it for you as a goodwill gesture since it takes them VERY little time.  We’ve maintained a good relationship with our realtor who has helped our family with multiple RE transactions over the past 4 years, so she was happy to take the <5 minutes to run a search through the MLS on our behalf.  She emailed over a pdf that had 5 recent duplex sales in our search area, as well as 3 more sales that are currently listed as “pending”.  These were easy enough to cross reference with the property appraiser’s website.

Note – all of these require that you go to your local property appraiser’s website to check for the most accurate data available.  Try googling “property appraiser + your county + your state”.  Most of them have online databases of their public records these days.  If you can’t find the database or don’t know where to search, call them!  Their jobs as public servants are to help citizens understand these public records.  The property appraiser’s website should contain information about recent sales histories, square footage, etc.

 

Step 2 – Organize Your Spreadsheet & Calculate Averages

Since we had five recent comparable duplex sales, I set up the basic spreadsheet below.  It shows the sale date, sale price, notes on the condition of the property (another good reason to use data from MLS as it contains condition information as well!), and after doing some drive-bys on the prices, educated guesses on what it would take to bring the property up to the same condition that our duplex is currently in.

The last two columns of the spreadsheet are the size of the duplex (in sqft – also found in the MLS or property appraiser’s website) and the Adjusted Sale Price/sqft.

Underneath the calculation of the averages of the comparables, you can see I added information about the PoP duplex, namely that its square footage is about 2K square feet.  Multiplying the PoP duplex’s square footage by the mean and median $/sqft for our comparables, you can see that we arrive at Implied Valuations of about $87K and $92K, respectively.

 

So why the heck have we valued the duplex at $97K?  Patience, grasshopper…

Turns out, there’s more to valuing a rental property like the duplex than just the square footage.  Read the rest in the second (and last) post in this mini-series: Part 2 – What Else Goes Into Valuing A Rental & What to Do Next?

 

How do you keep track of the value of your properties?  Have you ever done a market comparable analysis like this before?  

28 comments to Our $50K Duplex Is Worth $97K – Why? Part 1

  • Realtors in my area have very little ethics and when I asked how much I would get for my flat they overvalued it so I give them my business. Then after two weeks they say “it is a hard market” and ask me to drop the price a lot. They assured me before that all the flats went for that high price, so I wouldn’t trust them as accurate valuers for the market. With a bit more work, I could request the sale prices from a public register, this is accessible to all.
    Pauline recently posted..Little house in Guatemala, week 2My Profile

    • It depends a lot on the realtor – this one knows us very well and has worked with us a lot, so she knows better than to tell us how much something is worth. Instead, she gives us the raw sales information (since the public database isn’t easily searchable) and we figure it out ourselves.

  • Seth

    I don’t have a duplex, but I do have a single resident rental home. I update the value about once a year (primarily because I only want my feelings hurt once a year). I know an appraiser who usually gets me updated comps in the area. I also peruse the MLS listings online to see what the asking prices of houses are. I will usually check the MLS about once a month. I don’t do any detailed spreadsheet tracking, but I should. I probably should track the asking prices on houses in my area and updated it each month.

  • swimmy44

    I signed up for eproperty watch on behalf of a friend who now rents in my neighborhood and may be looking to buy – helpful, thanks. I always snoop around for pre-foreclosures in this neighborhood – although thankfully the values are going up fast.

    • ePropertyWatch definitely lets you be nosy… when a pre-foreclosure pops up in our neighborhood (not as common as it was a few years ago), we’d walk by and try and figure out if we thought it was going to go into foreclosure or not.

  • Good job on your rental gaining value! It was bound to happen sooner or later. I have hope for mine as well. So far they are holding steady but I imagine that they will appreciate at a certain point!
    Holly@ClubThrifty recently posted..Dependent Care Flexible Spending Accounts (FSA)My Profile

  • Very great news! They reappraised houses in our area a while ago…they did a poor job. Values went up, but that’s just going to discourage people from moving to the city. And many people in this area don’t have a mortgage hanging over their head, so all it did was push their property taxes way up. Sometimes their driveways were valued at the same or higher number than their homes! (Driveways aren’t THAT rare here.)
    femmefrugality recently posted..Konichiwa, Japan!My Profile

  • This grasshopper has little patience, but so far so good. That’s great that the value is up for you. I’m curious if it is due to your renovations or if the market in FL is going up.
    Kim@Eyesonthedollar recently posted..Obesity in America: What It Costs UsMy Profile

    • Totally the FL market. The value changing from $50K to $70K was the renovations, but the market here fell so hard that the bounce back is pretty sharp in some areas around here, too. Our neighbors a few doors down that bought their house when we did for about $140 just sold for almost twice that… I assume it’ll plateau within another 6 months or so and this is mostly just the market realizing that all is not hopeless in Florida RE. =)

  • Ivy

    How do you find out reliably whether something was short sale or not?
    I did comparables earlier this year to prepare our court case for property tax decrease. I first identified a bunch of possible comps from zillow, checked the data against the county appraiser database (which has very limited info) and also asked our ex-realtor for the MLS listing to enclose to the case.
    We won our case ($1k less to pay a year), but I had shown up in court with 7 decent comps from the neighborhood, and it turned out that only 2 or 3 of them are not short sales. And this was not something mentioned in the listing except for one of them.

    • Congrats on winning your case with the property appraisal board! We did the same thing when we first bought our home, and I’ve been pulling together how we did it to write a post on that too.

      As for knowing which are short sales, in about 2008-2009, the local realtor’s association around here realized that they would all stop wasting each others time if they disclosed short sales accurately in the MLS listings. Since then, the MLS listings around here are pretty reliable in that regard.
      Another way that we know is how the sale is documented in our property appraiser’s database. If it’s labeled “qualified” or “arms length” that means that the county considers it a market sale (not forced or under duress), and it’ll be included in how they make their appraisals.
      Short sales get labeled “disqualified” and usually have the following text: “Sales disqualified as a result of credible, verifiable, and documented evidence
      Transfer which was forced or under duress; transfer which was to prevent foreclosure (occurs prior to date shown in judgment order for public sale)”

      That said, in our Value Adjustment hearing, I was able to argue that at the time of our house purchase, the only market in our area was foreclosures so to exclude them wasn’t a realistic understanding of current market activity. If more than half of the recent sales in your neighborhood were short sales, I think arguments could be made to support a similar line of reasoning – although that might depend on how much debt was forgiven in the short sale, etc.

  • This is exactly why my house isn’t listed on my net worth statement. It’s all so confusing and a guessing game sometimes, and I’ve got very little experience with it. But I guess if I ever want to invest in property it’s something I’ll have to learn.
    Congrats on the value increase.
    justin@thefrugalpath recently posted..Common Reasons Why People Complain About MoneyMy Profile

    • I wouldn’t say it’s a guessing game so much as it’s understanding what goes into valuing a property and practicing it. You’d be surprised how many people invest in property and don’t understand this kind of stuff… but this is what the banks will use to figure out the home’s value for mortgages, etc. And it’s not hard to keep track of!

  • I love sites like redfin and zillow because I think they’re eliminating the need for realtors more and more. You can do comps yourself now very easily and there isn’t a MLS stronghold on real estate data.
    Harry @ PF Pro recently posted..Annual Enrollment Time: How Much Can a HSA Save You?My Profile

    • I think as long as they’re taken with a grain of salt the sites can be good, but the information usually needs to be double checked for accuracy in your property appraiser’s website. I’ve found A LOT of errors in Zillow’s data… but *free* is a powerful price point!

  • That’s a nice jump in value. I like to use Zillow and I too have heard that they are off sometimes, but at least they give you a ballpark figure for house values.
    Terry recently posted..5 Steps to Get Your House Ready to Rent by Terry SprouseMy Profile

    • My amount of trust in zillow’s valuation methods is REALLY low… If you look up our duplex, for instance, it classifies it as a single family home worth $124K. Next door is an identical duplex that it classifies as two separate 2/2 single family homes worth $74K and $86K respectively. $124 – $160K is a pretty big ballpark, especially when the algo can’t even seem to tell a multi-family property from a single family one.
      But I’m also a big stickler for data accuracy, so it probably gets under my skin more than others.

  • [...] Independence, and Terry from Fix Em Up Rent Em Out included our updated duplex valuation posts, Our $50K Duplex Is Now Worth $97K – Why? with their readers in Mr CBB’s Weekly Picks, RFI Friday Recap, and Dreams: Investment Houses [...]

  • [...] PoP balance sheet this month, and unlike last month where it was a lot of gains due to realizing the duplex’s increase in value, this month it was virtually all real gains through putting money into savings (stock and cash) as [...]

  • [...] to our RSS feed and we'll keep it coming!  Thanks for visiting =) When we wrote our series on how Our $50K Duplex Is Now Worth $97K, some readers were wondering why we weren’t interested in flipping the property and making a [...]

  • [...] But for now, in our area, real estate isn’t cheap anymore. A few months ago I updated the market comps valuation for our duplex and felt really comfortable saying it had a market value of $97K. You want to know what a similar [...]

  • [...] we’re sitting on a valuation of about $100K. It’s still a little below the historical trends, but I’m reasonably confident that the [...]

  • Joy Howell

    I need help evaluating a duplex can you help do the spreadsheet and the market analysis?

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