How to Estimate a Property’s True Market Value

Over-estimating a property’s true market value in terms of resale value and rental income potential is a common mistake made by many beginning real estate investors and novice home buyers.


Of course, buying based on an over-inflated true market value will have a negative impact of profit margins down the road. For example, aspiring “flippers” or investors who buy run-down or foreclosed homes with the intention of fixing them up and selling them for a quick profit are often surprised to find they either a) bought at too high a price, b) under-estimated renovation costs or c) can’t sell the property as quickly as they had planned.

The bottom line is they are left with a lot less (if any) profit by time ownership of the property actually transfers out of their hands.

In addition, would-be landlords (aka buy-to-let investors) can succumb to the promise of high rental values only to then be disappointed when the market doesn’t support these claims.

Whether you’re planning to flip a property or buying-to-let, you must first make sure that the price you are paying is in line with what the property is actually worth. This is especially true in the current real estate market where home and property values have dropped precipitously in recent years. Obviously, money saved on the purchase price will also mean a smaller down payment, lower mortgage payments, and greater odds you’ll be able to sell the property at a profit when you decide to do so.

Understanding the Local Market

One of the best ways to estimate the potential value of a property is to understand the local market. Fortunately there are a number of tools to help you do this:

Use the Internet – It’s important to know what transactions have taken place around the property you are considering. Where you need to look will vary depending on where you are located. In my area, the county Auditor’s office keeps records on real estate transactions. This is helpful to see how much the home or property last sold for and when that transaction took place.

Browse estate agent listings – Using the Internet and local papers, you can soon get an idea of the market value for different types of property in the area. It is also worth arranging a couple of viewings, allowing you to make suitable comparisons when you have decided on a place to purchase.

Talk to Your Real Estate Agent – He or she should be able to gather a list of “comparables” to show you what similar properties in the area have sold for in the recent past. This is great information to have, especially in areas where significant drops in real estate values have recently occurred.

If you are planning on investing in rental properties (buy-to-let), you’ll also want to talk to a few rental agents to try and gauge the general rental prices that could be expected. Again, rental listings on the Internet and in local papers will help to verify the amounts tenants will be prepared to pay.

Take Your Time and Weigh Your Options Carefully

In these turbulent economic times, it is harder than ever to determine the true market value for some properties. On the plus side, there are many bargains available right now as foreclosures and short-sales continue at an alarming rate. However, you will still need to do your homework to make sure the property you are considering is worth what you are paying for it right now.