# How to Calculate a Property's Worth

Setting an asking price way above what your property is worth is a mistake. A house that's priced 10 percent above the market value will sell much more slowly than one priced within 5 percent. To set your price properly, you must know the fair market value of your home. Fair market value is what it would sell for if both you and the buyer were knowledgeable and wanted to make a deal but weren't desperate. If you have the time and energy, you can make a market appraisal to find out your property's worth.

Record the property's features the way an appraiser would. For a residential home, write down the square footage, the number of bathrooms and bedrooms and special features such as a swimming pool or a geothermal heat pump. Also write down any problems, such as a leaky pipe or unstable stairs.

Find at least three or four houses similar to yours that have sold in the past six months and write down the sale price. If your house is a common builder's model, just talking to people who've recently bought neighboring homes may get you that information. If that doesn't work, you have to do research: Look up county land records, network with real-estate agents or drive around town and talk to owners with a "sold" sign on their house.

Collect detailed information about the homes you've selected and how they compare to yours. If one of the homes is the same basic model as yours but has been modified by the addition of \$10,000 deck, subtract \$10,000 from your sale price. If your house has a \$17,000 add-on to the original model and the other house doesn't, add \$17,000 to the sale price.

Average out the prices of the comparable home sales after you adjust them. If the adjusted prices are \$220,000, \$230,000, \$220,000 and \$205,000, the average is \$218,750. That gives you the rough worth of your property.

#### Tips

• "Comparable worth" isn't the only way to calculate real-estate values. Appraisers sometimes use the income approach for commercial or rental properties, basing worth on the annual income the property brings in. The cost approach looks at what it would cost to build an identical property from scratch.
• The assessed value that a county places on real estate before levying property taxes often has little to do with the market value. Many states cap how fast appraised value can rise, or make appraisals once every two or three years. The result is assessed values that don't match fair market value.
• Comparable sales are only useful if they may be characterized as "arms length transactions" -- those conducted as though the parties are not related. If the owner of one of the houses sold it to his son, the sale price may be completely different from what a stranger would agree to pay.
• Even if you calculate the value perfectly, that won't be good enough for lenders. If you're selling or refinancing your home, the bank will want a professional appraiser to look it over before issuing a mortgage.