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January 20, 2017

What is a Property Worth?

The question that everyone wants to know when they are buying or selling is ‘what is a property worth?’ With so much information out there it is easy to try and drill down to an exact number what a property is worth. I can tell you this; It is only worth what a buyer will pay and seller with sell it for. Simple. That being said, lets take a look at a couple ways that you can evaluate a property to narrow down its value range.

1. Comparative Market Analysis (CMA)

This is the most commonly used way to determine a property’s value. You look at the most recent sales for properties, in a similar location, size, age, quality of finishes, condition, etc. This is a good was to establish a baseline for value in a local real estate market. The reason we do this is because if a property was sold recently and is similar to the one in question, this will confirm or predict the value. We all like to feel validated in our decisions especially when it comes to a large decision like buying or selling real estate.

2. Replacement Value

This way of evaluating the value of a property is to calculate what the cost would be to build the exact same property from scratch. This would also take into account the value of the lot in certain cases such as a newer build in the inner city where an old home is bought with the land and then demolished to make way for construction. This can be a useful way to determine value but not on it’s own in my opinion.

3. Dollars Per Square Foot

I find that this is a sometimes useful way to help determine the value of a property. Although the common problem is that not all properties are created equal in terms of quality of finishings, floor plan, feel, etc. This is a good way to help determine value but should not be used alone.

Summary

At the end of the day a property is only what a buyer will pay and a seller will sell for. Almost every time I will rely on the valuation by using a comparative market analysis alone, or in combination with the other two ways to evaluate a property’s value. The key is not to over complicate things. Do you homework to best position yourself to make a good decision, but don’t forget why you are buying or selling. That will help you make the right decision.