How to Estimate Property Value

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Whether you are a potential buyer or seller of real estate, or if you just need to know a property value so as to secure insurance or a proper tax assessment, it is important to be able to estimate the value of that property. 

Ultimately, a property is worth whatever a buyer is willing to pay for it under existing market conditions. All property is zoned by the local city, town, or village in which it exists. This zoning determines the potential uses of the property and sets certain rules and conditions for its development. 

If you are selling or planning to buy a property, you may need to get a zoning variance to allow for additional uses or for the size home or structure you can build on it. Such a variance can add great value to a property and greatly increase the interest from buyers.

To begin the valuation process, you need to find comparable properties in the same area with similar zoning that have sold or at least been recently listed. A good real estate broker can help you with this process. 

Based on the sale or listing prices you can begin to get a good idea of the range in which your property will fall. A report on the comparables should include zoning restrictions and other data that can be useful in distinguishing your property from the others. 

Obviously if your property is in a very desirable residential area and it is the only property, or at least one of very few properties, available for development, then the value will significantly increase. If it is close to public transportation or a highway entrance, those are features that can add value. 

The quality of the local school district can significantly affect the value of your property. So can nearby shopping and the quality of the local hospital add value as well. 

You can also hire a real estate appraiser. They usually charge several hundred dollars and will visit the property and then do all the necessary research to determine a valuation. They will report on comparables and provide you with an in depth report on your property as well as a monetary valuation in the current market.

If your property is zoned for commercial or manufacturing use, more factors enter into the valuation computation. If your property is located on the main street of town and has the capability to accommodate a reasonable parking lot, then it will be very attractive to certain retail chains, particularly banks and pharmacy chains and will increase the valuation. 

If it has good highway access and will not raise traffic congestion issues, it will be attractive for the development of a big box retailer or a movie multiplex. Even if it is a residential parcel and is close to such a critical mass development, it will have a positive impact on the valuation.

It is a good idea to develop a relationship with someone in your local building department so that you can learn of plans for critical mass commercial development in your area or, at least, if retailers or manufacturers are looking to come in. 

These types of developers usually try to stay under the radar in order not to drive up prices while they are trying to assemble a parcel big enough to meet their requirements. But they will have to file traffic impact studies and environmental impact reports, so a good researcher can uncover such impending plans.

If there are structures on your property, they can either add to or reduce the value of the property. Depending on the needs of the buyer, they can remain or be torn down to meet the requirements of the development. 

If there are any outstanding liens against the property, you will have to reduce the value by the amount of the liens that would have to be satisfied upon sale. Repairs that are required to be made to existing structures or the resolution of any environmental issues are also costs that have to be deducted,

Another approach to valuation is to look at the price / rent ratio to determine the cash flow potential of a property. If a property is already generating rental income they you have an actual number to use. If not, then you need to look at comparable rental properties to determine what rent your property can generate. 

Take the monthly rent and multiply by 100 to determine a very desirable valuation. Multiply by 150 and you will have a reasonable valuation. Obviously, the higher the percentage that you use, the more desirable your property will be in the marketplace.