The best approach to determine the subject properties Fair Market Value is the use of comps that recently sold within the subject's neighborhood and are the most similar to the subject property in the various aspects of comparison. The important criteria when comparing your property to the other sales is: sales price, lot size, age of the home, square footage, and general location.
How does my home compare to the recent sales?
There are several key factors in determining the value of your home. A common method is to take the cost per square foot from the selected comparable sales that were the most similar to your property. For example: if you are purchasing a home for $325 per square foot, and the average for the recent sales is $345 per square foot, then you can feel good about purchasing your home slightly below the average market price.
What do I look for when I'm reviewing the comparable sales?
LOCATION:
Select all the sales that are as close to your house as possible and share similar amenities in the area, such as same schools, same shopping, & same recreational areas. Then eliminate any sales that are superior or inferior to your location because of freeway or road noise, difference in views, closer proximity to retail or commercial uses.
If your property is located in a condominium complex or a sub-division then it would be ideal to use comps in the same complex or development if possible.
How many comparable sales should I use?
During our search we may find 30 homes that are similar to yours, or we may only find 3. It depends on the area, time of year, and level of sales activity in your market area. We will list any sales that we think are relevant to your home. Because this is your market area, you'll have a better feel for which comps are the best for comparison. Ideally, if you can narrow the comparables down to 5-10 the final results will be more realistic.
Which sales are the best comps?
In a perfect world, underwriting / Fannie Mae guidelines would like all of the comps to fit into the following parameters: Recent closed sales within 90-days; sales to be within 1-mile of the subject property; square footage to be within 20-25% of the subject's; similar bedroom count (definitely a must if you have a 1 or 2-bedroom house); and homes that are in similar condition.
These guidelines are not always possible if there is a lack of recent sales, so we expand our search parameters until we find the best available comps at the time. All homes have a value; we just need to find the correct comps to prove it.
