How to estimate the value of your property without a realtor

When was the last time you assessed the current value of your home or rental properties?  

We bought our first rental property in 2008, and since then never adjusted the value of the property in our asset listings.  Meanwhile, the national housing market has shown solid year-over-year increases in both existing and new single family home prices.  While the value of our rental does not matter as much as the monthly rent we are bringing in, it does help to know what our holdings are in light of our financial goals.  Accurately knowing what we have helps us make better plans - for example, could we sell our property and buy two more and make more in rental income?  

In February, I ran my own analysis on our first rental property and found I had the home valued at about 30% less than the market.

How do you find out how much your home is worth?

While you could ask a professional realtor to provide a valuation (and they might charge you) you can do a lot of what they would using tools that are freely available on the web.  Websites like Zillow, Trulia, and Redfin have built extensive databases of home sales data over the last decade and provide different types of tools for valuing homes.  Here is how I used Redfin to value our rental property:

  1. Search for your home on Redfin's home value tool.
  2. Check that the information it has on record for your home is accurate.
  3. Find at least 5 recently sold properties that are a) close to your home, b) similar in amenities (size, number of bedrooms and bathrooms), and c) simliar in finishes (low-end, mid-grade, high-end).  These are called "comps".  You can usually figure out how similar the finish outs are using the images added to each sales listing.
  4. Calculate the sales price per square foot for each comp and average those together.
  5. Multiply the average price per square foot by the size of your house.

So here's an example with actual numbers.  Let's say your house is a  1,800 sq.ft. standard 3 bedroom, 2 bath.  You identify comps in Redfin that are as similar as possible - this can be tricky as you are trying to weigh a lot of pricing variables at the same time - and come up with 5.  

Property Sq. ft. Beds Baths Distance Sales Date Sales Price
Comp 1 1,600 3 2 .4 10/13 $176,000
Comp 2 1,750 3 2 .14 11/13 $182,400
Comp 3 1,682 3 1.5 .33 1/14 $159,900
Comp 4 1,944 4 2 .25 12/13 $198,999
Comp 5 1,654 3 2 .1 12/13 $178,345

Then you figure out the sales price per square foot for each comp and average those together.

Property Sq. ft. Sales price Price per sq. ft.
Comp 1 1,600 $176,000 $110
Comp 2 1,750 $182,400 $104
Comp 3 1,682 $159,900 $95
Comp 4 1,944 $198,999 $102
Comp 5 1,654 $178,345 $108
Average $104

With an average price per square foot of $104, you would multiply that by the number of square feet in your home, 1,800, and come up with a market value of $187,200. This is the price that you could reasonably expect your home to sell for provided there are no exceptional quirks about your home that would substantially add or detract from the value of your home.

So this is pretty much how realtors calculate market value for a home.  It's part science and part art, but it's definitely not magic.