How does a buyer determine the value of a property?
As a buyer, you may find it difficult to determine the real value of a property you are interested in. How do you really know what it is worth, in order to make an offer that is fair to both the seller and you? (Because a win:win is always the best)
Let’s look at a property and go through the steps you should be looking at.
Yesterday I was previewing homes in the Mills River area with another Realtor and we looked at a house. This home has three bedrooms and two bathrooms, and is about 2,000 square feet. It is priced at $869,000. It has been on the market as of today, 912 days.
What you will find is a home in pretty rough shape, but with very good bones. Although the exterior of the home is badly in need of a new roof and all of the windows need replaced, the exterior brick is in really good shape. The interior needs to be gutted. The kitchen and bathrooms are so outdated and the kitchen barely functions. The floor coverings are very old, worn carpets, but the flooring feels solid underneath.
The property comes with 17 acres, and has a barn, pond, and some views. It is open farmland and could be turned into a working farm again.
Because of the acreage, you may want to temporarily discount the land value until you can determine the value of the home. You will want to compare similar homes in the same condition and see what they have sold for. I would look at homes with under .75 acres and see those numbers. So let us say for this example this home compares to others in the $150,000 range. That gives us a starting point.
In looking at this property, one would need to take into consideration how much money the home would need in order to get it back in shape. You might start with a contractor in order to get a good idea before even considering an offer. And an inspector to determine what the good, bad and ugly are in the home. Let us just say, for this example, that the home may need about $60,000 to get it into shape with a new roof, new flooring, a new kitchen and new bathrooms, plus painting the walls. This is probably way off, but we’ll go with it. Looking at other homes in the area in the same shape with similar square footage, number of bedrooms and baths, we can determine that this home may be worth around $150,000 to $160,000.
Now let’s look at the land. There are 17 acres. In order to determine land value I went back to January 1, 2009 to see what had sold. I looked for land that was 5 acres or more and found only three properties that had sold in this time frame.
The first lot was 10 acres, and wooded, and it sold for $186,700. It was on the market for 499 days and the average per acre price came to $18,670.
The second lot was 6.3 acres, a wooded property. It was on the market for 48 days and sold for $233,000, or $36,984 per acre.
The third lot had 21 acres and was mostly cleared, with some woods and a stream. This property was on the market for 137 days and sold for $135,000, or $6428 per acre.
Let’s take the value of the home, $150,000. And let’s calculate the value of the land using the property value of the highest selling lot sold, $36,984 times 17 acres, to give us $628,728.
Combined with the home value, we have determined that the value of this property could be valued at around $778,728. This does not include the value of the barn and other out buildings. This would also have to be determined. And keep in mind you may have to spend $60,000 for repairs.
Now that you are armed with this information what would you offer? You would have to determine what this property is worth to you, based on what is there and what your needs are, along with the data you have collected.
In gathering this information before making an offer, you are doing your due diligence. You are being an informed buyer. Always look carefully at whatever data you can get before thinking about what a home is worth. If you do your homework, you will feel good about any offer you make.
Find a Realtor that will assist you in gathering this information so that can make an offer based on fact rather than a gut reaction or any dream price you may have. After all, a win-win is in everyones best interest.