An overview of property valuation
Working in real estate is certainly interesting. I spend my days looking at the inside and outside of properties. All types of properties. From dilapidated structures worth no more than land value, to phenomenal estate homes with unparalleled views of the intracoastal, I see it all. What I'm going to attempt to explain is how two Realtors can look at the same piece of property, then come up with totally different valuations.
This blog, and the vast majority of my valuations, are based on numbers. I've dealt with agents that have told me per square foot valuations have no place in a residential real estate transactions. I couldn't disagree more, but I've heard this from more than one agent. They're certainly entitled to their opinion. However, the first thing I'm going to look at when I'm valuing a property are the unadjusted closed sale prices of comparable sales. I'll take those sale prices and divide by the homes total area. I'll write those numbers down so I can give myself a baseline to work off of. While appraisal reports will take 3 active and 3 closed sales to study, I try to find 5 closed sales I can focus on. On the active sales side I'll take 3-4 listings to use a guide. What I'm attempting to do at this point is find a bracket of low and high per square foot pricing that homes are selling for.
Where things start to get tricky are on the adjustment side of the valuation. Appraisers do have some common figures they use for adjustment. Values are assigned to specific features of a home. A pool is worth X dollars, a 2 car garage is worth X dollars. When I'm looking at a property I believe I need to use my experience, based on Fort Lauderdale norms, to give a more subjective value. If there's a pool, but it's the size of a kiddie pool, I won't assign a value to it. Another agent may. Small items like that add up over the course of a valuation which is one of the reasons why you can see wild swings in opinions of value. The valuation process I have is pretty simple when it comes to the subjective. I simply ask the question, how much more would I (or a buyer) pay for this feature? If two townhomes are identical, but one has a roof deck, how much more would I (or a buyer) likely pay to have that roof deck? See how subjective the process can get!
Specialization, and a deep understanding, of a small geographical area is critical in the valuation process. For example, I'm looking at two properties which are actively listed. Without too much detail each is a 3 bedroom, 3 bathroom home. Both are approximately the same size and in roughly the same condition. They are less than .4 miles from one another. One is listed for $495,000 and the other for $1.9 million, both waterfront. If you don't know the area well you would likely conclude one of these sellers is crazy! If you know the area you realize one property is west of Federal Highway and behind a fixed bridge, while the other is to the east of Federal Highway and not behind any fixed bridges. If an agent, or appraiser, doesn't know Fort Lauderdale well they wouldn't understand the value added to property which is not behind fixed bridges.
It is my opinion that a client should have a full understanding of their Realtors valuation process. It's part of our job to explain value to our clients. Transparency should be paramount in any Realtor/ client relationship. If you're looking to sell your home be leery of someone who values your home without seeing the inside of it first. Whether I'm working with a buyer, or a seller, it's not possible for me to value a property until I've been inside of it. There are too many variables. I also show my clients how I've arrived at value, I even give them the data I've collected! If an agent gives you a figure that a property is worth, but won't take the time to show you how they arrived at that value, you may want to find another agent. This applies to both buyers and sellers.
If you'd like to have a more in depth discussion of valuation, or if you'd like to know what your home is worth, give me a call or send me an email!
I work as a Realtor in Southeast Fort Lauderdale. If you’re interested in buying or selling a home, condominium, or townhouse (townhome) in: Rio Vista, Victoria Park, Downtown Fort Lauderdale, Fort Lauderdale Beach, Sailboat Bend, Tarpon River, Croissant Park, Collee Hammock, Wilton Manors, Pointsetta Heights, Coral Ridge, or Las Olas Isles, please feel free to contact me at (786)443-7203 or through my email firstname.lastname@example.org. I am a Realtor that works on Saturdays to accommodate those with busy schedules.
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Written By Casey Prindle