Valuing Real Estate in a Changing Market

 Valuing Real Estate in Changing Markets

Pricing an investment property can be done through a number of methods ranging from the income approach to the sales comparison approach. Today we offer rules of thumbs to use when try to value assets in an appreciating or a depreciating market.

Market: Appreciating

Rule of Thumb: Use Active Listings instead of Sold Listing to come up with a fair market value of the asset

Rationale: Sold comps are always 2 to 3 months behind in timeline given the period of time needed with financing hence the sold listings can under value the asset in an appreciating market

 Market: Depreciating

Rule of Thumb: Use Under Contract Listings adjusted by a median discount percentage rate

How to calculate the discount percentage:

Discount percentage is calculated by Sale Price/Under Contract List price for similar comps across a 6-month period of time. (Utilize the median discount percentage instead of average discount percentage)  

Rationale: Sold comps can be higher in valuation given that the market value is declining on a weekly/monthly basis. Active listings can be irrelevant given that the market can be saturated with over-priced properties due to unrealistic sellers