The real value is what you are "really willing to pay for it". That's it. We use comps to try to get a decent measure but people agree to buy things for less that comps and higher than comps all the time.

Drop an offer that you feel is right. Have a range you are willing to work within and move on if you don't get the deal.

The market analysis of the nieghborhood by a Realtor is an important tool in helping you value the house. It is also important for you to compare it to other homes yourself. You should look at several similar houses before you make a decision as to which house to buy.

If you spend some time and look at enough houses, you will have a better idea of the true market value of the house than anyone else including the appraiser and the home seller or both Realtors. The true value of anything is what an informed willing seller and an informed willing buyer agree on in an arms length transaction. Everything else is an educated estimate of value.

John,

Close, but no cigar.

To determine the correct Gross Rent Multiplier, you must divide sale price by the potential income.

And though you could use this approach to arrive at a GRM, the true GRM is arrived at by using SOLD comparables, since those will more accurately determine true market value. If the GRM you arrive at by dividing the asking price by potential income is too high compared to those GRMs arrived at by dividing sold comps by income, then you know the asking price is too high for the current market. You can then take that GRM arrived at by using comparables and applying it to the potential income of the property in question to arrive at a value. Obviously, the lower the GRM, the better the investment.

Example: comparable sales price $400,000 / $2000 monthy rental = 200. THEN you take the 200 figure and multiply to it to the potential monthly income of the property in question to get the approximate value of THAT property. (Sales Price/Monthly Gross Income = GRM, then Annual Gross Income X GRM=Value)

You can also divide a comparable sales price by the YEARLY potential income and get a GRM. In the above example, it would equal 16.6. (Sales Price/Yearly Gross Income = GRM, then Annual Gross Income X GRM=Value)

To apply across-the-board a 100 or 150 GRM like you suggest would be useless and you would arrive at completely inconsistent and incorrect values because properties in different locations have different GRMs.

Though you could attempt a GRM approach to determine market value for a single family home, it is best applied to multi-units/apartment buildings. And even then, determing cap rate is a more accurate approach.

Finally, though GRM is a nice quick way to determine estimated market value, there are too many inconsistencies that one must take into account, such as vacancies, uncollected rents, and many other factors.

See, John? Not all Realtors withhold useful information.

The best way to gauge the value of a home is something Realtors fail to tell anyone...hmmmm....I wonder why??????

Find a house you would want to buy.
Find out what similar houses would rent for in that neighborhood.
Multiply how much the rent of the home would be by both 100 and 120. That should give you an approximate value on the home. Obviously, there are some x-factors accounted for in the price as well. But if the cost of buying that home is exorbitantly higher than that range, you would be paying too much and you should wait until the home price reaches that range. If it never reaches a price close to that range, then you are better off renting.

Now my real question is: Realtors, when someone asks a similar question on Trulia, I've never seen an answer that mentions Gross Rent Multipliers...Why? Why not be forthright about this information?

If you have a Realtor representing YOU, that Realtor can provide a market analysis of the house that interests you so that you will understand the sales of similar homes in the past 3 months. The sale price must be in line with recent sales in order to get a mortgage.

Beyond that, you are purchasing a home...what is the value of that home to you?

Get a Broker that is a producer and Knows their market. That question you asked is a great one T. In these Markets we have a hard time telling. The best method is to find sales from the past 90 days in the same area that you are looking in. Try Zillow or better try Cyberhomes.com. Zillows data can be very dated. Better get a realtor that has MLS access and get those latest comps.

Bottom line is what is the home worth to you? You need a place to live and your Home is not a stock or bond ot be bought or sold. If you like it and it seems a good value that you can afford than buy it.

After you do your homework of course.

Success to you!

Dirk Knudsen
"The Real Estate Doctor"

T, you can contact any Realtor in your area for a market analysis of that home. Or you can go to http://www.Zillow.com and get a pretty close estimate. Good luck.