Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
I've seen a couple threads over the past week where the OP has questioned how to find comps and estimate ARV. Marty Boardman and I discussed this topic a bit at the BP Summit last month, and I also put together a quick primer that I distributed to those who attended our Summit presentation.
This 10-page document certainly isn't an "everything you need to know about doing appraisals and estimating resale value," but should be enough to teach anyone the basics of estimating ARV.
If the comp sold for $150,000 we would subtract 7,000 because the subject property is older and add 5,000 because the subject property is larger, leaving us with a total adjustment of -2,000.
Based on this very limited example, the subject property would have an ARV of $148,000.
I remember reading about this in the Flipping Book, and it dawns on me I never figured out how J managed to get his numbers when comparing other similar properties. For instance, when he speaks of comparing the subject property to comp #3, in regards to sq footage, he subtracts 8000 from the subject property's worth, because obviously a larger house would be worth more.
My question is: if all other variables were the same (as in all had 3bd/2ba, age, porch, etc.), but the last comp has an extra 700sqft, would you adjust using the price per sqft? If so, I don't think that's how he adjusted it, but I could very possibly be missing something.
Thank you this helps to better explain some details on comps. I am carious though to see some response to Michael's question above on just adjusting the price per sqft.
How would one decide that just because a SOLD property is 5 years new, that this is the reason it sold for any amount more/less? I'm only asking because there are hundreds of other factors and we would have no way of knowing why the buyer decided to pay more for the property. Not to mention a property built in 1948 could have been fully rehabbed in 2016. So again we can not infer that this is the factor that caused the eventual buyer to pay more/less for the property. Same with a pool. Some people love the idea and yet others maybe scared their children would be at risk.
How would one decide that just because a SOLD property is 5 years new, that this is the reason it sold for any amount more/less? I'm only asking because there are hundreds of other factors and we would have no way of knowing why the buyer decided to pay more for the property. Not to mention a property built in 1948 could have been fully rehabbed in 2016. So again we can not infer that this is the factor that caused the eventual buyer to pay more/less for the property. Same with a pool. Some people love the idea and yet others maybe scared their children would be at risk.
Best regards,
Randy
Hi Randy - There are two reasons for estimating the value of a house:
1. To determine what a buyer would likely pay; and
2. To determine what it would appraise for.
These numbers are often different. The important one is whichever is lower, as that's likely to be your ceiling on sales price. The method I provide here is to determine the value likely to be found for #2.
In terms of what a buyer would pay, the best way to glean that information is to know your house, your area, your buyer pool, etc., like the back of your hand.
First off, great job on the Estimating ARV guide...very insightful and gave me a better understanding of comp analysis.
I am still fighting though with the understanding of how to figure how much to adjust a particular comp. Now I'm aware that there is no "across the board" set number (for instance, one additional BD on a comp property would require you to subtract 5,000 from the comp property) - but I have been confused by just how to decide by how much one must adjust (up or down) their comp price.
First off, great job on the Estimating ARV guide...very insightful and gave me a better understanding of comp analysis.
I am still fighting though with the understanding of how to figure how much to adjust a particular comp. Now I'm aware that there is no "across the board" set number (for instance, one additional BD on a comp property would require you to subtract 5,000 from the comp property) - but I have been confused by just how to decide by how much one must adjust (up or down) their comp price.
Any feedback?
The best way is to try to get your hands on a couple appraisals of local houses. See what the local appraisers are using for adjustments, and that should give you an idea...
I'll give it a shot and see what I can dig up. Thanks for taking the time to respond. By the way, I didn't realize you were in Ellicott City. I used to stay in Baltimore for a short period when I was younger around the Dundalk area, east of Baltimore city.
The BWI Meetup (www.meetup.com/BwiMeetup) is good -- I'm on the board there. They meet tomorrow night, btw.
And the Anne Arundel County Meetup (www.meetup.com/Unofficial-Biggerpockets-Real-Estate-Meetup-Anne-Arundel) is great -- I'll be speaking there this month.
Hi @Shelly Scruggs I'm a VIP member of the BWI Meetup and can second J Scott's recommendation. I moved out of state temporarily so I don't attend right now, but they have a fantastic VIP facebook page that keeps me informed.
Two others I can recommend are the Real Deal Meetup (there in Balt.) and also the Capital City REIA (if you ever find yourself in NoVA).
I run one as well (though it's not specific to real estate) called Building Wealth Together (we're on Meetup and facebook), but with me out of state for a year we're not doing much right now.
Alot of great info on finding ARV. I have been out of the business for quite some time and have doing a lot of homework to ensure I do not make the same mistakes. I appreciate the help you give in your posts.
I was questioning how to figure out the amounts to adjust for comps too. I will try to speak with one of my friends whose a realtor to figure that out a dollar amount for adjusting for squ are footage, bedrooms, baths, etc.
This was an excellent resource - Just finished the read through and added it to my folder of resources with markups and highlighter for review when searching for new properties.
many have said to use a realtor to get ARVs. By any chance would a realtor exaggerate the ARV in order to make you think the listing price is good? I've come across situations where I thought the listing price was high and the ARV the realtor gave was too high compared to looking at recently sold homes on realtor.com and zillow.com.
1. Agents always may have an incentive to provide incorrect values. For example, a listing agent may want to get a house sold more quickly, so they could provide a low value. That same agent might want to get as high a commission as possible, so they may inflate the value to try to get an above value sale price. In theory, an agent should be providing an accurate value, but that doesn't always happen.
2. I would never trust data I get on Zillow or some other public site. First, without more detailed data, it's very difficult to adjust the cops. Second, condition is not always obvious just from pictures. Third, it's possible that there was some condition on the sale that is not obvious from the public site but that affects the value. Fourth, data is often delayed to these sites so you may not be using the most reliable comps.
Long story short, agents won't always get you the correct value, but I would trust them more than I would trust trying to determine a value using sites like Zillow.
Guys, I'm sorry to say that this seems a bit confusing. What is the ratio to price for each year difference that a comp property has? Same goes for Sw footage. How do we look at these properties and draw the number (seemingly out of midair) to make sense ?