Happy Wednesday, everyone! Today we’re diving into real estate. Unfortunately, Grant is out with the flu, but we have Daniel Moore stepping in with a segment called “Daniel Does It.” Our focus today is property evaluation, particularly on comparable sales or “comps.” Knowing how to accurately evaluate properties is crucial in real estate, and getting the After Repair Value (ARV) right can make or break your investment.
The Basics of Comparable Market Analysis
What is a comparable market analysis (CMA)? A CMA is an opinion or estimate of the most probable price in a competitive and open market. It’s critical to understand that “opinion” or “estimate” means there can be varying interpretations, which is why having solid data is crucial.
Key Factors in Property Evaluation
Understanding Comps
When someone asks, “What’s the comps?” they’re referring to comparable sales data. This data includes CMAs and is essential for determining a property’s value. Misinterpreting this data can lead to costly mistakes.
Factors That Influence Property Value
- Square Footage: Typically within 20% of the subject property.
- Year Built: Plus or minus five years.
- Beds, Baths, and Garage: Try to match as closely as possible.
- Subdivision: Stay within the same subdivision when possible.
- Recent Sales: Preferably within the last 90 days.
Real-world Examples
Imagine you’re at a networking event, and someone asks, “What are the comps?” You can explain that you’re looking at recently sold properties within the same subdivision, similar in size, age, and features like beds, baths, and garage spaces.
Common Mistakes
The most common errors in evaluating properties include:
- Using properties that aren’t truly comparable.
- Ignoring geographical boundaries like major roads or greenbelts.
- Overlooking the importance of matching the number of stories.
- Failing to account for major factors like pools or fireplaces.
Advanced Considerations
High and Best Use
Sometimes the highest and best use of a property isn’t immediately obvious. For example, a two-bed house in a three-bed neighborhood might need a renovation to add a third bedroom to reach its full potential.
Market Conditions
Pay attention to days on market (DOM). If a neighborhood has long DOM, it might not be the best place for a quick flip. Also, consider factors like school districts, which can significantly impact property values.
Property Types
Always compare like-for-like properties. Condos to condos, single-family homes to single-family homes, and so on. Mixing property types will skew your data and lead to inaccurate evaluations.
Off-Site Factors
Consider off-site factors like nearby cell towers, highways, or undesirable neighbors. These can significantly impact your property’s appeal and should be factored into your evaluation.
Case Study
Let’s say you’re evaluating a property on 2904 Olive St. Start by pulling tax records to confirm square footage, beds, baths, and year built. Next, use tools like Propelio to find comparable sales within the same subdivision or as close as possible.
Review the pictures of similar properties to ensure you’re comparing apples to apples. Once you’ve collected your data, calculate the average price per square foot and apply it to your subject property.
Wrap-up
Mastering property evaluation through comparable market analysis (CMA) is a cornerstone of successful real estate investment. By accurately assessing comparable sales data, taking into account key factors like square footage, year built, and property features, you can make informed decisions and avoid costly mistakes.
Understanding the nuances of market conditions, property types, and off-site factors further refines your evaluation, ensuring that you can accurately determine the After Repair Value (ARV) and maximize your investment potential. With these insights, you’re well-equipped to navigate the complexities of property valuation and achieve real estate success.
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