How do you determine the market value for a property?

Question

The idea of the real estate game is to obviously find properties that are priced below market value… aka “a deal”. How do you determine what that market value price is for a particular property, however? Is that where the appraisal comes in? Zillow has it’s Zestimate, but I’m told not to put too much value into that as it’s often times inaccurate.

Mark Millich · Answer

@Patricia Steiner

Hi, Patricia! Thank you for the thorough response. This is great information. So I currently am working with a realtor, but a lot of people I’ve spoken to are really advocating for me to do a direct mail campaign in order to find the best deals. It seems that a lot of people have success with this, but I’ve never understood how they were able to determine that what they were getting was a good deal without going through a realtor or getting an appraisal first.

Finding off market deals, even with realtors, seems to be a little difficult as well. I’m starting to reach that point of analysis paralysis and haven’t pulled the trigger. It's difficult, but I'm sure it can be done!

Patricia Steiner · Answer

Market value is determined by the type of property and then by one (or more) appraisal methods.  For residential properties (SFH, MF 4 or less), the market approach is the accepted method. It's based on comparable sales - what someone was willing to pay (and actually did within no more that 180 days; 30 - 60 days is preferred) for a property that is comparable to the one you're considering.  A realtor/broker can provide you with this value.  An appraisal also determines value but it is underwritten based on its engagement. You'll want to see Zillow's disclaimer on its Zestimate; it's about 12 standard deviations from reality...so it's a good quick guess, just not too accurate.

Determining comparable sales on your own (if your not a realtor) isn't really possible/feasible. As a buyer, you don't pay any commissions so why not add some bench strength to your search and have a realtor - one who works with investors - be part of your resource team. It will certainly speed up the search and provide you with a quick/free valuation based on comparable sales.  While getting a under-value deal is the goal, that's not possible in some hot markets.  But you NEVER want to overpay.  Hope this helps.