How to Determine What A House is Worth?

A huge key to my success buying investment properties is buying homes below market value, but how do you know what a home is worth? If you are not a real estate agent it is very difficult to determine fair market value, but it is still possible. If you are just beginning to invest in real estate it is wise to use multiple ways to find market value. One of the most important factors when determining a good investment property is calculating the market value.

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When you are fix and flipping homes it is pretty obvious that market value is the most important factor to determine a profit. Actually ARV (after repaired value) is the most important factor, because you want to know what the home will sell for when it is fixed up. When you are buying long-term rental properties the market value may not be as important as it is on a fix and flip. However, you still need to know the market value of a long-term rental for many reasons.

Why is it important to know market value when buying a long-term rental?

1. You need to know the market value on a long-term rental because you may have to sell it one day. There are many reasons why you may have to sell even though you may not plan to when you buy the home. You could have an emergency; financial, medical, relationship etc. You may decide you don’t like investing in rentals or you may need the money for an incredible opportunity. I want to buy 100 rental properties, but if a better opportunity comes along and I need to sell some of my rentals I will have no problem selling them for more than I bought them for.

2. A great way to get money to buy more rental properties is to refinance your current properties. Almost every lender will want less than a 75 percent loan to value ratio on an investment property refinance. The best way to gain equity is to buy homes below market value. The more equity you have in a property, the more money will be able to take out when refinancing.

3. In order to get loans on multiple rental properties you have to know a great bank and be able to convince that bank it is a good idea to invest in you. A bank will look at many factors when lending to investors. Most importantly they want I know the investor is in a good financial place. If you own 8 properties with little or no equity, that is not a good position. If you own 8 properties with 50 percent equity that is a great financial position to be in. and a bank will be more willing to lend to you.

For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.

What is the easiest way to determine market value on a house?

The easiest way to determine market value is to hire a professional. I am a Realtor and provide comparative market evaluations for sellers all the time. I also provide values for investors and buyers as well. The trick for the new investor is convincing a Realtor that you are a serious investor and they aren’t wasting their time. The easiest way to overcome this problem is to buy a house, but that’s not realistic for a beginning investor trying to figure values.

My advice is to be perfectly honest with agents, tell them you are new and you are trying to figure market values. It helps if you have done some work first and can ask them if the value you came up with seems accurate. Then buy them lunch or give them something in return. Simple gestures like buying lunch can make a huge difference in convincing someone to help you.

Don’t ask the agent for ridiculous things or make huge requests. Don’t ask for 100 values or sales comps from the last two years for an entire town. I recently had an investor ask me for all the cash sold comps in the last year for metro Denver. Then he wanted me to put them all on an excel sheet and email them to him. I had never talked to this investor prior to this request and was just a little put off that he expected me to spend hours and hours of work for him. He gave me no reason to do this work and didn’t even tell me what he wanted this information for. To top it all off I’m not even in the Denver market.

How do you know what a house is worth when you’re not a Realtor?

I mentioned that it would be good to have your own value in mind when talking to an agent. But how do you come up with a value yourself? It is not easy to value a home unless you use a website like Zillow. Zillow however is not always accurate. I wrote an article about how accurate Zillow is here. Some of the values from Zillow were as much as 40 percent off on my own properties! I would not trust Zillow to provide a value on homes, although you can get some great information from Zillow.

When I value properties, I use sales comparables to determine the value on a home. I compare multiple sales in the last 6 months that are as similar as possible to the home I am valuing. I am a Realtor so I can easily pull up any sold comps I want from MLS. If you are not a Realtor it is not so easy to find sold comparables. You can find sold comps online at Zillow and a few other websites, but you don’t get all the information you need with those sold comps.

Zillow uses all sold comps it can find; foreclosures, short sales and sometimes trustee sales. The reason this is important is you don’t always know if those were market sales or distressed sales. A trustee sale price could simply be the amount the bank was owed and not a market sale. You also don’t know what the condition was of the sale, any concessions, or the financing terms. You don’t know how long a home was for sale, how many price changes there were or if it was a short sale or REO. These are vital details you need to make an accurate value.

It is possible for an investor who is not an agent to determine a range of values based off online comps, but you still need to talk to an agent to make sure your values are accurate. If you have a great agent, they will probably offer you sold comps in an area and make your life much easier!

Here is a great article on how an appraisal is completed that gives more insight into valuing properties.

Should you use an appraiser to value your home?

Many people think they can just get an appraiser to figure out what their house is worth. However, this is not always the best idea. Appraisers value homes, but their primary objective is to make sure the home is worth at least as much as what the contract price is. The appraiser is typically hired by the bank and they are used to confirm values, not determine values from scratch. I can say from experience when an appraiser has a contract price to work from, they usually come in very close to the contract price, whether that price is right on with value or 20 percent off. The reason this happens is appraisers face tremendous pressure not to value homes too high after the housing crisis. There was a lot of fraud during the housing crisis and the entire appraisal system was changed.

When I refinance my rentals, the appraisals almost always come in low, because the appraiser has no contract price to base the appraisal on. They are coming up with a value on their own, and they do not want to come in high. This also happens when a seller asks for an appraisal before they list a home. In my experience a real estate agent will give much more accurate values than an appraiser. Not because the appraisers do not know what they are doing, but because of the system they are forced to work in.

How can you challenge a low appraisal? 

Using active comps to value properties

It is also possible to use active listings to value properties. It is not easy to use this method, because an active listing does not mean it will sell for the asking price or at all. Active comps do give you an idea of what is for sale in a neighborhood and what the competition is. I use active comps to value properties along with sold comps. You can use active comps for a broad value, but not a solid value. The best way to use active comps for values is to track them over time. Keep track of the asking price, when they go under contract and how much they sell for. When you know the history of a sale on a website like Zillow, then that comp becomes much more valuable.

Adjusting for values on an investment property

When you find sold comps and active comps that are similar to your subject, your work is not done. You then have to decide if you need to make adjustments for the differences between the comparables and the property you are valuing. I won’t go into a lot of detail on this subject as I could write ten more articles on it and still not cover everything. If you have a home you are valuing with a one car garage and the sales comps you are comparing it too have a two car garage, you have to make an adjustment. If the bedroom, bathroom or room count is different, if square footage is different, views, location or anything else is different you need to make adjustments. Coming up with how much to adjust is the tricky part. More expensive homes have different adjustments than less expensive homes. Different areas of the country put more value in certain amenities than other parts of the country. I am not going to tell you how much to make adjustments for, because I am not in your market.

Again, a real estate agent can help you figure out the how much different amenities add in value. When you look at enough homes and comparables you should start to get an idea on how much features and size add in value. It will take time to get to know your market and be able to accurately figure values and adjustments.


It is not easy to come up with a value when you are not a real estate agent. If you can find an investor friendly agent, it will save you a lot of time and trouble trying to figure values out. I have a great article here on how to find an investor friendly agent. I have an article here on the benefits of becoming an agent yourself when you want to be a real estate investor. I think the best way to determine values is to get an idea of values by looking at homes, checking out sold comps and then comparing what you came up with to what a real estate agent comes up with.


  1. Tom September 22, 2015
    • Mark Ferguson September 23, 2015
  2. Tony February 11, 2014
  3. David Kolmer February 2, 2014
    • investfourmore February 2, 2014
  4. Grace Ng January 18, 2014
    • investfourmore January 19, 2014
  5. Tom Knittel January 17, 2014

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