Recently, I had an interesting challenge preparing a good value for a listing. The home is situated on a Salt Water Lake and has a tremendous view. Very few other homes in this exclusive subdivision have a comparable lot or upgrades similar to my subject home. Finding a value was, at first, extremely difficult. So I called a friend of mine who had been in the appraisal business for many years and explained my dilemma. He explained that when Appraisers cannot find just the right comparable, they go back in time and work forward. The following evaluation is the result of his suggestions and makes great sense.

Let’s start with a historical evaluation:

My sample house first sold for 319,900.00 at about the same time as my subject house. According to MLS it had a size of 2900 Square Feet with little or no upgrades and was not on the lake but on a corner lot. That translates into a selling price per square foot of $110.31 per square foot.

If I multiply that times the size of my subject house (as recorded in the MLS) as 2750 Square Feet I get a selling price of approximately 303,353.00 if the house had been built on a non lake front lot and did not have many upgrades. By subtracting that value from the actual selling price of my subject house, (337,661.00) I arrive at a selling premium for the land and upgrades of 34,308.00. For the sake of this example we will add only half of the appreciation value (11.2%/2 = 5.6% per year) to this lot premium plus original upgrades. Since the original sale took place 4.5 years ago, that translates into a compounded lot premium value of 43,858.00

Using the averages found in today’s MLS for homes “sold” and “for sale” in the subdivision (none of which were on a lake), the average is 204.00 per square foot. Multiplying that times the actual size of subject property (2770 Square Feet) I arrive at 565,080.0o. Now I need to add back the appreciated lot premium of 43,858.00 and I get an approximate value of 608,938.00 for the home without any additional upgrades.

In talking with my sellers, I discovered that since the original selling price, over 40,000.00 worth of documented upgrades were added to this home by the owners. Using a conservative value of 50% of the upgrades, I now have a realistic value of my subject property of 628,938.00. So you can easily see how we arrived at a listing price of 617,000.00.

History really is our friend. Knowing how to translate it into a useful tool is invaluable.