Do not Trust Your Realtor: Common Valuation Mistakes

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OK OK … I do not really mean to trust your realtors or other advisors unless they give you a bad advice, like the three mistakes outlined in this article. Many realtors understand how to value real estate and can make a great asset (especially the ones that focus on real estate investors), but the unfortunate truth is that many investors and agents make common-sense mistakes:

· Add value to a property for a bedroom

Incorrectly adjusting for square footage

· Compare non similar style homes with no adjustment

Add value to a property for a bedroom

This is by far the most common error that I see. In some cases a bedroom wants to add value but normally you can not count on it. The house is more expensive, but the bedroom itself is more expensive. If you are looking for someone else, you may want to look at it again. It is basically a wash for valuation purposes. The one exception to this is the house does not conform to the neighborhood. For example, if the whole neighborhood is two or three bedrooms and you have a bedroom, it will be the same size. I would be very careful in these rare cases because it is hard to know how much value a bedroom will actually add. So when you are looking at your comps, look at the size and not the number of bedrooms.

This does not hold true for bathrooms. Bathrooms almost always want to add value.

Incorrectly adjust for square footage

A less common, but more devastating error that I see is a price per square foot model to value a home. Many agents make this mistake. The error is to use at an average price per square foot and multiply that number by the size of the house you are trying to value. It is not wise to use this method, especially if your house is on the small or large size for an area. Think about it. Is a 2,000 square foot house really worth twice as much as a 1,000 square foot house? House is on it. The area has a lot to offer. Using a price per sq foot model does not account for the lot.

The best way to do this is to adjust the size of the car. This can be very tricky because the value per square foot decreases as the homes get larger. It is a safe bet to buy the largest or smallest in an area, but if you do, use a very conservative adjustment for size. One rule of thumb that is 1 / 3rd of the average price per square foot as the size adjustment. This is pretty close to average, so it is nice; but again is a rule of thumb and is not science.

Keep in mind that I am above the ground adjustments. Basements do NOT carry the same value. In fact, it is usually worth less than half of the above ground square footage. For example, in a nice area at above ground level might be $ 90.00 per floor. I never understood this because it is usable / livable space and people love. I gave up trying to understand why. You donâ € ™ t need to understand why it is true as long as you know it is true and use that to help come up with an accurate value.

Compare non similar style homes with no adjustment

This one makes me laugh when I hear it. The biggie that I see is the ranch or rambler style home to a home with stairs, like a bi-level or 2-story. The house with no stairs is always more valuable. You need to think of yourself as a buyer and what a buyer would want. Another common example of this mistake is older homes to newer homes. In fact, we just took a call today from a client that was comparing They were almost identical in size and were within a quarter of a mile to each other, but one is about 30 years old and one was just built. Do you really think that anyone would buy a new home for? The newer home is worth more, so it's best to not even use that comp; but if you need to use it, be sure to adjust for the age.

My hope is that you will be able to come up with more accurate after repaired values, and that you will be better investor for it.

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Source by Kevin Amolsch

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