Analyzing Real Estate Deals: How to Calculate What the Property is Worth in this Market

Analyzing Real Estate Deals: How to Calculate What the Property is Worth in this Market

The real estate market is “hot.” We are seeing records breaking appreciation and values all over the country.

It’s not surprising. Real estate goes through cycles of ups and downs. And when it comes back up, it’s better than previously and it gravitates to a new value, before leveling out and stabilizing. Furthermore, if we adjust the real estate value to inflation, we have even more of an adjustment.

Between inflation and market adjustments, the same house that in the 1920’s you could buy for $2,500 is now worth $600,000!

The National Association of Realtors says that over the past 10 months, the average home value has gone up 16%!

But how do we tackle analyzing real estate deals in this ever changing market?

During times like these, it’s not an exact science. You do the best you can, based on some available tools and knowledge, but at the end of the day, the market is going to dictate what it’s willing to pay at any given time.

Use several tools and average the figures.

  • Zillow, Redfin and Realtor.com – look at what sales they reported in your area of interest that are comparable (in age and size) to your subject property and only for recent sales (3 to 6 months at the most.) Take in consideration only loosely about their suggested value (on Zillow it’s called “Zestimate”) since it does not take into consideration improvements, specific block or area and other economic factors.
  • Federal Housing Financing Agency (FHFA) – they have a calculator that tracks changes in values between sales and estimates. They also provide on the same page as the calculators other valuable information such as top 100 metro area rankings and latest quarter appreciation map.
  • Multiple Listing Service (MLS) and/or other Online Tools – the MLS has been the go-to resource for finding out comparables and what other properties have sold for. Unfortunately it is available only to licensed agents. If you are not a licensed agent, and you don’t want to ask all the time you need a comparables search, you can use online platforms which get their data from the MLS like Propstream.

Other factors to consider are supply and demand in your area. In some areas there are basically bidding wars from buyers purchasing available homes, sometimes at prices that are above asking price. In other areas, it’s more laid back and buyers are still considering the reasonable value of the property before submitting an offer.

In any case, like I previously mentioned, the market is going to dictate what people are willing to pay for the property. Come up with your best guess-estimate based on the tools and resources that we suggested.

As a real estate investor you always want to create an ideal situation of (1) making a profit and (2) provide a win-win experience.

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