Basic Q about market value vs. selling price

10 Replies

Can someone explain why the market value can be $50k on a house but the asking price is $25k? How is market value double what the actual value someone pays for it is? 

I assume I'm just naive but this does t make sense to me. 

The seller may be highly motivated to unload their house for less than its actual value for any number of reasons.  

@Jeb Brilliant 

The house could have a market value of 50k with an asking price of 25k, because of repair that needs to be done. The repairs may only be known to the seller(s) and Realtor if one is involved with the listing.

The sellers are definitely motivated! At first look, this seems like it could be a great deal.

Anthony Davis

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Thanks @Darren Budahn and @Anthony Davis . I am looking in Indianapolis and it seems like either all the homes needs a lot of work or Zillow is way off. 

Also if you buy 2 homes for $30k each but the market value is $50k each, do you own $60k or $100k in real estate? 

@Rodney Kuhl Can you suggest any way to get a good idea of the value of a house? I know what I'm willing to pay but that doesn't mean it's what the house is actually worth. 

@Jeb Brilliant You can try to find an agent to help you. Or you can look at recent sales on mibor.com and try to figure it out yourself. There isn't a perfect way, but zillow is all over the place so not really very helpful.

@Jeb Brilliant where are you coming up with these market values?

@Rodney Kuhl is right. Zillow is meaningless in a lot of markets including Indianapolis and Kansas City. Don't pay any attention to Zestimates.  I recently compared Zillow estimates to actual appraised values on about a dozen properties we've sold and found Zillow was an average of 30% off. The were undervalued on all but one property.

Mibor doesn't show sold price on very many of the closed sales, so if you don't have a real estate agent that can run you comps, the next best thing you can do is look at prices of active listings. If you have several within the same price range, it's unlikely the asking price on all are way off. You can then look at Mibor and see the average sales to asking price and make some adjustments to your estimated value. I think people put way too much time in to figuring out what market values are. That's what appraisers are for. If you're financing, your lender will require one so save yourself all the hand wringing and analysis paralysis. Let the appraiser tell you what it's worth. Unless you have access to the MLS and can see the MLS sheets on the properties you're using as comps, you know nothing about the condition of the property, the amenities or whether it's a distressed sale. You're only going to be wrong because you don't have enough information. Also, keep in mind that appraisers use 3 methods of determining value. If the CAP rate for the area is 9% and your property would bring a 9% ROI based on the rental income stream, then that determines it's value. Not all appraisers will include a comparative market value and an income approach value, but when they do, I rarely see big differences in the values based on the two methods.

Do yourself a favor and if you think it's a good property and the returns are good, don't worry about it. The appraisal will tell you what it's worth.

Thanks @Rodney Kuhl and @Mike D'Arrigo for the input. I was just curious about the difference between what I'm paying and what Zillow says it's worth. 

Originally posted by @Jeb Brilliant :

Thanks @Rodney Kuhl and @Mike D'Arrigo for the input. I was just curious about the difference between what I'm paying and what Zillow says it's worth. 

 Jeb, pay no attention to anything Zillow says about values, They're not even close and the time you spend looking them up on Zillow is time you'll never get back. It's meaningless data.

@Jeb Brilliant   It is actually very common to see a property in Indianapolis on Zillow which is shown as an active listing (ie. for sale) at say $30k, with a Z-estimate of $90k, and the "true market value" (i.e. what a reasonable investor might pay given comparable sales and other factors) is likely closer to $20k.  One sees it all the time on Zillow for properties in Indianapolis.  In short, at least for the Indianapolis market specifically, the Z-estimate is totally unreliable.  For other markets, it can be a much closer approximation for market value, but not for Indianapolis.

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