Intrinsic value of a home

Asked by Chuck, 22314 Sun Dec 30, 2007

How can I find the intrinsic value of a home? In the neighborhood that I am looking at, townhomes have been on the market for 90 days or so. These are homes that have been built in the 30’s to the 40’s have two bedrooms, one to two baths. They are about 1200 sq/ft. The neighborhoods are nice, however they are adjacent to areas in which realtor's are not allowed to discuss out of the Fair Housing Act. Some of these homes were purchased in 2002-2004 or so for about 240K. They are listed now for 480-499K or so. I know its about supply and demand, but I think demand has slacken way off, hence the 90 days on the market, (some are well over 180 days). I would like to know this so I know where realistic negotiations could begin. Is it as simple as taking the price they purchased the place for, add any upgrades, then add 10% each year? Thanks!

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Richard Rose…, , Alexandria, Arlington, & Fairfax
Sun Dec 30, 2007
The simple answer to this question is that market value is simply what a buyer in willing to pay.

Around here, specifically, we've seen values go up 14-18% for several of the years between 2002 and 2006. We've also seen the markey slide backward 6% in some years. No simply calculation can adequitely substitute for an appraisal and a proper going over in the free market, which is what you have when a property is listed for sale. To use your example specifically, ie: purchase in 2004 for $240k. Do nothing to improve and increase by 10% for 2005, '06, and '07 = $319,440. Even if you do that backward to 2002 you only come up to $386,522. A seller would fire sale the property at $450k and take $425k before they'd accept an offer obelow $400k.

Say that a buyer wanted to hedge their bets, that values might continue to decline: first you'd do an analysis or appraisal to determine the value today, then determine how much you think the market might slide - then make an offer.

Buyers say, "well the seller got it far a song 'X' number of years ago - they're making plenty" all too often. The value of the property is determined by the market, not a set number every year. (although that would certainly make my job easier). Don't forget that demand usually picks up again after the first of the year too.
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