- The Washington Times - Wednesday, January 19, 2005

What is the fair market value of your home? The quick and easy answer is: whatever a seller can get a buyer to pay for it.

When Realtors vie for a listing, they will present comparative market analyses (CMA) to help the seller determine price.

The CMA helps determine an asking price, but the real value of a house is the final price paid by the buyer.

An appraiser determines a home’s value compared to other area sales of that particular home style, and the lenders base their loan amounts on those appraisals.

Meanwhile, there are three ways of determining the value of a property when putting a home on the market: the CMA, square footage value and tax assessment formulas.

The CMA is by far the most popular means used by agents. It’s a straightforward way of determining value and works best in a subdivision where additions or alterations on the homes have not created an eclectic housing environment.

If you have four or five basic models in the community, it’s a relatively simple process to derive an asking price.

For instance, if the New Squire model (four bedrooms, two baths, carport on a quarter-acre lot) is selling for an average of $315,000, that’s probably the best price or value you’ll be able to determine for your property.

If the market is heading upward or downward, you need to talk with your Realtor to determine your best asking price.

The challenge with this pricing model occurs when the community ages and owners begin to close in carports, bump the space out and up, finish basements and alter the original floor plans of the houses.

Once that happens, the Realtor has to investigate further to determine if the New Squire models that sold for $315,000, $320,000 and $325,000 last monthindeed had the same floor plan, amenities and features to provide an apples-to-apples comparison.

When the homes no longer resemble the original construction or you live in a community that is not a subdivision, you’ll need to look at the average price per square foot.

The agent researches all the aspects of your property and constructs a list of homes comparable to your home throughout the area to arrive at an average cost per square foot.

Thus, while you’re looking at homes in neighboring subdivisions or communities, the square footage for a particular style of home can be determined — then you would multiply your square footage by that factor.

For example: Your 1,600-square-foot ranch home in the community averages $125 per square foot; thus the asking price would be $200,000.

Again, all the factors of the community, amenities and features would be taken into account to make sure the comparison is true so that the ranch homes you’re comparing have the same number of bedrooms, baths, fireplaces and decking.

Obviously, not all ranches in your community are created equal, and disparate conditions and locations would have to be taken into account.

When I priced a golf-course home with two levels, I had to take into account that the owner had installed a genuine wine cellar, a two-level living room with automatic drape openers, a three-car garage, and an addition for a game room and extra guest-bedroom suite.

No homes in the neighborhood matched this target property. I had to find homes in the neighboring communities on golf courses to determine a price.

When you run into this type of problem, you should consider the tax-assessment means of determining value.

The good thing about this methodology is that it doesn’t matter what type of amenities, square footage or model of home you have. The formula works throughout the neighborhood or community.

In essence, you take the average tax assessment of a community and the average sales price in the community divided into each other to determine a multiple factor.

For instance, if the last 10 sales in the community averaged $312,000 and the average tax assessment equaled $275,000, you would divide the sale price by the tax assessment to determine your multiplier, which would be 1.13.

Take the tax assessment of any target home in the neighborhood in the community and use the 1.13 multiplier to determine the fair market value. A tax assessment of $175,000 multiplied by 1.13 would result in an asking price of $197,750.

These three methods are simplified for the space in this column, but they provide you with an idea of how to determine fair market value for your property for rough estimates.

The best way to determine value is by using professionals.

M. Anthony Carr is the author of “Real Estate Investing Made Simple.” Post questions to his Web log (http://commonsenserealestate.blogspot.com).

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