specific formula for determining value?

Starting Out 15 Replies

Do realtors use a specific formula to determine the exact value of a home, and/or what it should rent for? I know they look at the houses that sold in the past, etc. but is there anything esle specific that they do?

Originally posted by "mouschi":
Do realtors use a specific formula to determine the exact value of a home, and/or what it should rent for? I know they look at the houses that sold in the past, etc. but is there anything esle specific that they do?

Most will find 3 comparable properties that have closed recently to determine value. Rent is determined by the market. I've found craigslist to be the best market barometer of rent.

Tim Wieneke, Goodmen Property Inspections | [email protected] | 813‑574‑0155 | http://www.goodmenpi.com

even then to get an accurate picture, i still need to have access to the mls to see what properties actually signed up to be rented at though, right?

AFAIK, rents are not captured in the MLS. Craigslist is one good source of info, newspaper may be another. We have a list of resources here. Try driving around in your farm area, looking for for rent signs, and calling.

Jon Holdman, Flying Phoenix LLC

so is rent just a completely different animal then? There is no way to tell truly what things rented for, so therefore it is not as a solid thing as setting a price for sale?

Rent is determined by the market. Generally, there's not a lot of negotiation over the rent, in my experience. Either people pay what's advertised, or the don't rent the place. So, unlike property listings, ads for rentals will give you a good idea of the rents. You need to make calls, though, to figure out all the details.

Do a rent survey. Find as many rentals as you can in your farm area. Use all sources, but especially signs. Call them all and pretend you're a prospective tenant. Ask about beds, baths, all the amenities. Ask about deposit. Ask about lease terms. Ask about utilities. Ask if they're flexible on the rent. Notice the intangibles, like is the person hard to get ahold of? Are they a jerk on the phone? Can you understand them and do they understand you?

If you do this for the rentals in the area where you're going to buy, you'll have a really good idea of the real rental situation.

Jon Holdman, Flying Phoenix LLC

Rent and Sales should follow the same logic as each other. Asking prices for rent and asking prices for sales are the same thing. They each rely on competition. Any agent that uses "sold" comparable primarily when pricing property for sale, doesn't "get it".

More important than what has happened in the past, is what is happening right now. No buyer will buy a house for $250,000 if he can get the same thing for $230,000...regardless of what has happened in the past...unless they are ill-informed.

In addition, be careful about "sold" data that a realtor gives you from MLS. Most MLS's use final contract price as the indication of "sold" value. However, most MLS's do not disclose concessions, closing costs, builder incentives, etc...

For example, two similar houses could have both closed for $250,000. One closed six months ago and one closed yesterday. The one six months ago was a cash transaction where the buyer paid all the normal buyer expenses. But what if the one that closed yesterday included an upgrade to granite counters at the builders expense, $7,500 in closing costs, a rate buy down of 1 pt, and most importantly, a 60 inch hi-def in the living room?

Doesn't that change the picture a little?

Here in CO, the MLS listing is the only place to find any concession info. It doesn't make it into the public record, but does show up on MLS sold listings.

Jon Holdman, Flying Phoenix LLC