## Monday, June 17, 2019

### What is my Pine City home really worth?

No matter where your home is located, the process of valuation is always the same.  Appraisers, Buyers, Realtors, and Investors all use the same approach when it comes to determining value.  The value of the home is determined by what someone is willing to pay for it.

In order to come up with that number, a few different approaches are used by appraisers.  Typically then an average of these methods are then used to come up with the value.

COST APPROACH:   This takes building costs into account.  On average right now building costs are \$120-150 depending on the finish work of the build out.   A higher end home costs more to build.  So the cost approach is sometimes used and factored in for resale value.  For instance 1000 sq foot home at \$120/ft to build would be valued at \$120,000

INCOME APPROACH:  This method takes the properties potential income for determining the value of the asset.  If it can rent for \$1 a foot, for example a 1000 sq foot home can rent for \$1000 a month, then you can take this gross income, subtract out the expenses to get NOI (net operating income) and divide this by the CAP rate for rental properties in that particular market.  CAP rates (also known as capitalization rate) are usually in the 6-7% range depending on the market, the property and the demand for that asset.    So assume in our 1000 sq ft example, gross income would be \$12,000, and you can discount 30% for expenses (an estimate) to get to 70% of the gross for NOI = \$8,400 then divide this by 7% for the CAP rate (assuming that's an accurate CAP), for a value of \$120,000.

COMPARISON APPROACH:  This is pretty common to look at other comparable properties or comps to determine the value.   Of course one of the unique things about real estate is every property is slightly different, so the value of having a pond, or 2 acres vs. being on a busy road is all subjective.  Once you've looked at enough homes (over 100) and watched what they're selling for and tried to determine why, it gets easier.

So what is your Pine City Home Worth?  It's worth whatever a buyer will give you for it - that still holds true.   If you want a free home evaluation of value, call a realtor.   They may give you one.  We will give you an offer.  You can base our offer then and say 115% above that offer is the value.  Typically our offers are about 15% below what the value is for the market.  We're using 22 years of experience, to come up with that number.