One of the most important factors to look at when analyzing what your offer should look like when investing in a property is calculating the Fair Market Value (FMV).
The FMV approximates what a property would sell for in the current market. It is one of the most important parts of your research into a property, and it can help you avoid overpaying and cutting into your potential profits. Keep in mind though, that the FMV is not necessarily what the property will sell for, but it is a probable estimate based on the current market conditions.
Pro Tip: Do not spend the time calculating the FMV of a property until you know it is a solid lead and you have an actual appointment set. There is nothing more frustrating than taking the time to do your estimates only to find out the seller isn’t motivated or won’t accept an appointment.
Once you have an appointment, there are a few ways to determine the FMV, and each method has its positive and negative aspects:
- Appraisal – A common and quick way to get an appraisal is to hire an appraiser. However, it will cost you and can take some time. An appraisal is usually only the best option if the lender requires it, or if you are a newcomer to the real estate investing business and are still learning the market.
- Comparables – You can also determine the FMV of a property yourself by analyzing what comparable homes in the neighborhood have sold for recently. To determine FMV using comps you can use the below factors to evaluate comparable homes:
- Square-footage – this is the most important. The homes you use as comparisons should have similar square-footage.
- Year built – try to use homes built within 5-years of the home you are valuing.
- Finishes – homes that have comparable finishes are the best. For instance, homes that have been completely updated with new flooring, kitchen and bathrooms would give a more accurate comparison.
- Location – the comparable homes should be within a one-mile radius. If they are in a specific subdivision, it is best to use homes within that neighborhood, if possible.
- Amenities and specific features – keep things in mind like views, proximity to busy streets, pools and other amenities when doing a comparison.
- Architecture – using properties with similar architecture and style is best.
To make life easier, and to get the most accurate market value, you can use an automated system, like our ProfitGrabber Pro, which can help you calculate the FMV of any property in just seconds.
How to Find Comps
To find comparable properties, you can use the Multiple Listing Service (MLS), which is great because it has pictures of the homes, or a program like I mentioned above, ProfitGrabber Pro, which features an Ultimate Data Source service and gives the same figures as the banks and title companies use. I advise staying away from the free real estate websites like Zillow and Redfin because the data is not always accurate. You can also enlist the help of a realtor who is familiar with the market.
You can learn more about determining Fair Market Value and my proven strategies to close deals quickly and professionally in our Unlimited Funding Program. Knowing the correct strategies for determining FMV and learning how to analyze these figures properly is one of the first steps in helping your real estate investing career soar.