hud home considerations - Information on how to select the right property to buy including how to place a value on a HUD home, how to inspect a property before buying it and other considerations every home buyer should evaluate. 

How to determine the value of a home

The market value of a home should not be confused with the market price of a home.  Market price is what a home sells for.  It is the price that a buyer is willing to pay for a home and a seller is willing to take for a home.

Market value, on the other hand, is determined by someone's interpretation of market data, the condition of the home, and the climate of the local real estate market.  The key phrase here is that value is an interpretation which makes it a very subjective number placed upon a property.

The basis to evaluating a home's value lies in the data that you collect in order to make your best judgment.  The foundation of this data are market comparables.  A market comparable is a home that has sold within the last 6 months and is similar in size, style, square footage, condition, age and amenities.   The closer the copy, the more exact your valuation will be.

Comparables are relatively easy to come by.  If you are working with a real estate agent to purchase a home, he or she should be able to provide a list of comparables.  Other sources are the local section of the newspaper, the County Recorder's office (a little more tedious, but possible), or the local library where you may be able to use various computer programs to access local property information.

Make sure the homes are as similar to the subject property as possible.  Do they have the same number of bedrooms, bathrooms and square footage?  Is it similar in age and close to the subject property?  Does it have similar amenities such as a pool, fireplace, or a three car garage for example.  Most importantly, are the comparables no more than six months old (anything older is not considered to be comparable).

Once you have a list of comparables, the easiest way to determine value is by looking at the average price per square foot for homes in the area.  This is accomplished by taking four or five comparables (Note: Make sure the comparables are in the middle of the list.  Don't use the comparables from the top or the bottom of the price ranges for these generally are results in atypical market sales).  Next divide the comparable's square footage into the sales price.  Average these out for your comparables to find out the average price per square foot for that type of home in that area.

For example, imagine that you are looking to buy a 1,900 square foot home and you find the following comparables:

Here we see that he average price per square foot is $52.57.  If we multiply $52.57 with the square footage of our subject property ($52.57 x 1,900), we can estimate that the home is worth approximately $99,883.

Remember, this number you arrive at is only an estimate.  The actual home's value may be higher or lower, depending upon the condition of the property in relation to the market comparables.  If the subject property is waterfront property with a pool and the only market comparables you were able to find were not on a lake or had a pool, you may have to adjust your estimate higher.  On the other hand, if the subject property is in a state of disrepair and you know it will take at least $20,000 to renovate the home, your estimate may be considerably higher than the property's actual worth.

Market valuation is subjective and the science behind it relies heavily on the historical property sales in the area.  The closer the market comparable is to the subject property, the more likely the subject property will be worth the same.  Most importantly, if you have a real estate agent assisting you, use his or her expertise in deciding a property's value.  An agent who is experienced in the local real estate market will certainly have a keener eye for the details of home valuation than someone who has never done it before.  

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