Determining "Fair Market Value"

Determining fair market value is not a exact science but this page offers some quick factors for deciding market value on properties in the $100,000 range.

DOM (days on market):

There is no impact on market value if DOM is under 180 days. Extended periods in excess of 180 days, approach with caution, as the movement of property in that area may be sluggish. However don't be afraid to think in broad terms; this could present possible opportunities for a rental property.

 

Sale Price:

"List Price" does not equal "Sale Price".

Bedroom and Bathroom count:

Add or subtract $3000 for each full bath, $2000 for ½ baths.

Garage:

Add or subtract $4000 per stall, 1/2 this amount for carport.

Basement:

Add or subtract $8000 for a full basement, additional $2000 if finished.

Pools/Tennis Courts:

No Adjustment

Be careful not to come up with an artificially high pre-determined value.  Stay open-minded and objective.  If the math looks strange, remember to ADD adjustments to the compared property to value it AS IF it had the same features as the subject property.

Example 
   Investment Property  		Comparable 1           		Comparable 2
   (Ranch)             		(Ranch)              		(Ranch)
   Sale price            		$100,000.00      			$105,000.00
   Days on Market       		DOM 45 no adjustment   		DOM 60 no adjustment
   1 Bath                		1 Bath no adjustment   		1 bath no adjustment
   1 car Garage         		2 car garage -$4000    		0 garage +$4000
   Basement (finished)   		No Basement +$10,000   		Basement(unfinished)+$2000

   Total adjustments 		+$6,000.00		        +$6000.00
   "True" Value           		$106,000.00		        $111,000.00 

Value range of subject:	  $106,000.00-$111,000.00

From this exercise we can determine that the subject property should sell for between $106,000.00 and $111,000.00 within a 45-60 day period.

How much will it cost to repair it?

After looking at the comparable sales, the investor need only reduce the repairs to understandable figures in order to calculate if the property can be purchased and repaired for 75% of its market value (the 25% equity magic number).

To estimate repairs one could have any number of contractors offer bids and submit proposals, however, the time required for meeting with these contractors and getting proposals may not be available.  A quick-thinking, fast-acting investor can estimate work required by walking through the subject property and tallying figures without a second appointment.

These figures are not hardcore, written-in-cement numbers, but should allow a quick and easy comparison of value, allowing a decision to be made after the estimates of repair have been performed.

The following offers some averages for the more common repairs to a 1200 square foot ranch without a basement.

• Paint w/minor drywall repairs: $800.00-$1000.00 per house
• Carpet (one grade above builders): $1000.00-$1200.00
• Kitchen and Bath flooring: $300.00-$500.00 per room
• New Roof (try to repair first): $2,0000.00-$3,000.00 per house
• New Heating and Air: $1,000.00-$2,500.00
• Appliances (Save Money-buy used): $250.00 per appliance
• Miscellaneous Expenses: add 10% to total

1. Be sure that you are true to your investigation and do not allow passion or trepidation to sway your decision-making either way.  It is more important that you swing than it is you hit a home run. (Bid often!). Having the right tools can help to streamline your investigation, take a look at the Real Estate Investor Suite for a software program that can collecting and analyzing your property information a simple task.

2. Before you sign the contract be sure to perform a home inspection (For the best value take a look at Real Estate Investor Suite) and get estimates for repairs from more than one contractor. Improvenet.com is a great online source for contacting several contractors at once.