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  • Writer's pictureJesse Ledbetter

New Year, new tool!

In a property valuation class that I taught last year, the primary tool that I left them with was that of qualitative analysis.

This is a method of ranking homes in order to come to an opinion of the price. While most lenders will require a quantitative analysis (adjustments derived from market data) for a loan, this method allows the agent or homeowner to make sure that their comparables are the best they can be.

In short, the method is based on the sales comparison approach to value, in which sales are chosen that are similar to the subject, but ideally some slightly superior AND inferior. This second part is often forgotten by agents and owners. For example: if your home is a 2000sf two story, and you select three sales in your neighborhood that are all between 3000-4000sf, and say, "Look, these all sold for between $500-600k," the only thing that you have told me is that the home is likely worth less than $500,000 as all your "comps" are superior, and do nothing but set the upper limit of what the home might be worth.

Good analysis has similar homes, but ones that "bracket" all of the ammenities of hte subject. Slightly larger/smaller, slightly better/worse condition, similar or more/less bathrooms, etc. Then by the ranking method above, each element shows how the property is either inferior or superior (NOTE: the sign indicates how you would need to adjust the comp to become like the subject, ie. the fair condition of comp 1 is worse, so its price would need to adjust up // you can use more +/-'s than just one if needed). The sum of the positive/negative signs indicates the overall superiority or inferiority, and should then indicate a final value range. Obviously, the example above is a simplified one, but the principles can apply to extremely complex properties as well, and can be done in a coffee shop on a napkin with your buyer/seller.

Stand out from your competition, and put this tool in your bag!

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