Welcome to the third installment of our series on valuing a property. In this article, we will look at other important parameters to consider when running comps. If you haven’t already, you should check out the previous installments: Getting Started and Pulling Comps.
Other Important Comparable Sales Parameters
Previously we talked about the Big Six parameters you should always use when running comps on a property. That data will get you quite far into developing a decent valuation. However, for true accuracy you need to dig a bit deeper. Depending on the property, the following parameters can also be big indicators of value. Remember to check on these too!
A very important factor, but not included in the Big Six. Why? Because ultimately property quality and condition outweigh it. Usually new builds will sell for more $/SF, but sometimes great remodels can beat them. Year Built is a good parameter to use when you can get comps of the same quality and age. You can also use Year Built to filter out new houses if you are running comps on an older, non-updated property (or vice versa).
For some buyers with children, this is a supremely important factor. Comps should ideally be within the same school districts, but if a comp has different districts it doesn’t disqualify it outright. That said, a comp in a good school district will have greater value than one in a bad district, all else being equal. So if your comps are in different school districts, dig deeper, pull more comps and try to determine if this parameter is affecting value.
This is a huge factor in the value of a property, but you don’t have to pay much attention to it unless you are, a) looking at raw land or, b) seeing wildly different lot sizes between the comps and the subject property. If the latter is the case, you will need to come to a separate land valuation in order to accurately adjust the total valuation. The best way to do this is by finding some raw land or tear-down comps to get to a base land value.
Active days on market or cumulative days on market show how long a property was exposed to potential buyers. In general, a very low DOM number shows that a property was underpriced, while a high DOM number shows it was overpriced. We focus on 30-day selling value which is a reasonable time for a competitively priced property to sell. You can adjust the final valuation of the subject property based on the average ADOM of comps: If average ADOM is less than 10 days, the value can be raised. If it is more than 30 days, the value must be lowered. You should be scared if average ADOM is over 4 months.
This is somewhat important, but is not a great indicator of value except for rental properties. (The more bedrooms, the more rent.) One exception would be if the property has only one bathroom but all of the comps have two or more. This would decrease the value of the subject property. Just make sure there isn’t a huge divergence here, and you’ll be fine.
That’s it for this installment of our Valuing a Property series. Check back next time to learn about how the real magic happens: Combining data for the valuation.
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