Why you need to Determine Market Value
As an investor you need to be able to determine market value for properties. This is important regardless of your intentions with the property. If you are buying a rental and plan to hold it long term, it may seem less important. However, you may want to refinance your rental and you will need the bank to agree with your equity position in the property. If you want to succeed in investing in real estate, it is critical to buy property at or below market value in order to make money.
How to Determine Market Value
There is only one way to accurately determine market value of a property, and that is by using comparable sales. This is the most accurate way and the only one we recommend. The easiest way to determine market value is to have an agent provide you with a CMA, or comparative market analysis. Agents are willing to do this for you as an interested buyer but don't abuse a relationship. A CMA takes some time to put together and send you for each property so make sure you are not wasting an agent's time. Remember as an investor you should be working to build relationships with agents through your career.
To determine market value on your own if you are not an agent you need to find recent sales of similar properties in surrounding area and their are a number of great free tools available to do this. Trulia and Zillow are great free websites with a plethora of real estate data. The video below shows how I use Zillow to find recently sold comps.
How to Comp using Zillow
Why other methods don't make sense
- Assessed Value - Ignore this completely. The assessed value of the property can vary drastically from property to property and from area to area. The county tax assessor uses this number to determine it tax base and set its budget. The actual value assigned to a home often has little bearing on what is going on in the market.
- Listed Properties - An agent and client can list a property for anything they want. A listed price or current listing has little bearing on the price the property will sell for or the Market Value of the property.
- Replacement Cost - Ignore this one as well. While buying real estate below replacement value is a huge plus, it doesn't have any bearing on the market price.
The effort it takes to determine market value is pretty low, either contact an agent and have them provide you with a CMA or check out Zillow or Trulia to find recently sold properties. I suggest you do both and compare the two.
Discount Property Investor is focused on providing bargain priced investment property to Real Estate Investors. As well as top notch advice on managing rental property and rehab or fix and flip projects. If you're looking to buy rental property deals below market value. Or income property for sale at a discount check out our current selection in the properties tab. Buy property the Discount Property Investor way!