How to Estimate Property Values
There is no universal formula to estimate a property's value. Multiple factors, such as location, property age, crime rate, total taxes and current condition, affect both residential and commercial real estate value. A residential property worth $50,000 in a rural community might be worth more than $200,000 in an urban setting. You must assess local supply and demand when evaluating market trends. Values will decrease in areas with excess supply, even if properties are well maintained.
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Instructions
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Compare recent sales of similar properties by concentrating on homes within a half-mile and sales from the past six months. Real estate values usually decrease if several properties have been foreclosed.
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Inspect the property's current condition (new, good, fair, poor). Determine if it is vacant or occupied (by the property owners or renters) and whether repairs are needed. Evaluate the interior condition (bathrooms, bedrooms, renovations) personally or hire an independent appraiser.
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Assess community factors, such as access to public transportation. Research area schools and amenities like libraries and parks, when estimating residential property. If you are interested in commercial property, evaluate adjacent businesses (occupied or vacant commercial entities).
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Analyze the cost of replacing the property. The cost approach assesses depreciation and rebuilding factors, such as design materials, labor, total size and foundation.
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Calculate potential income. For instance, determine the gross rent ($1,000 a month per unit if you purchase a duplex for $75,000). While you can potentially earn $24,000 a year if both units are occupied, consider costs of maintenance and taxes.
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Tips & Warnings
Commercial properties can be difficult to estimate, especially when the real estate includes depreciated assets. You should distinguish operational from non-functioning equipment.
Although local property tax offices maintain and publish records, the fair market value usually is not accurate. For example, most property owners do not disclose interior renovations, which will increase their tax obligations.
