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:
- Part 1 (this post) – Finding Comps & Calculating the Value from Price/Sqft
- Part 2 – What Else Goes Into Valuing A Rental & What to Do Next?
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.
- 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.
- 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.
- 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.
- 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?