BiggerPockets

Determining Property Value Part 3 Using Comps

Comps should be very similar to the subject property's sq. feet, number of rooms, design, age, features and lot size. In addition, the comps should list only:
- properties that have sold not active listings
- sold within the last few months
- located within one to three miles of the property. A big difference in the value of the comps could indicate a difference of the neighborhood (slum or beachfront property).

With these comps you can start calculating the fair market value. First, calculate the cost per square foot of each property listed in your comp. You do this by dividing the total sq. ft. by the price.

After you've completed this step for each of the properties in your comp, you'll want to determine the average value. Discard the highest and the lowest value. If you only have three comps, you'll have to keep them all.

To determine the average, add up all the values and then divide that sum by the number of comps you added. For instance, you've picked out six of the best matches from your comp list and calculated each one's cost per square foot. Eliminate the highest and the lowest cost per square foot from the list. Now you add the remaining four values up and then divide the sum by four. It's that easy. Now you have the average cost per square foot for all of the comps in your target area.

There's just one more step to take. Multiply this last number by the total square feet of your subject property to arrive at an accurate fair market value in that area today.

Average cost per sq.ft2
x total sq.ft2 of property
Property FMV

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