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There are a number of factors which make placing a value on waterfront property unique. Unique means more difficult to determine a value and one must be aware of the various unique factors. In this article we look at one of the most popular methods of placing value on property, the Sales Comparison Approach, and discuss unique factors to be aware of when placing a value on waterfront property.
Without even knowing it people use the sales comparison approach all of the time. You have probably done it yourself, “The neighbor’s house just sold for (fill in the amount), so my house must be worth about (fill in the amount).” On a basic level this is the sales comparison approach. Appraisers get more detailed and perform greater evaluation, but at the heart of it they are doing the same thing. Appraisers look at homes which have recently sold in the area and based on this place values on various features of a property and come to an estimate of value on the home they are appraising. They adjust a home’s value + or - according to a homes amenities or lack of them.
When using the Sales Comparison Approach to determine a value for property one tries to find a Like Property which has recently sold. A Like Property will be one with similar features in both the land where the home is situated (such as both homes are on a private ravine) and in the home itself (such as both homes are a two story with the same number of beds and baths). The more the two homes are alike, the easier it is to determine an estimate of value for the one home based on the recently sold home.
In the ideal situation you find a Like Property in the same neighborhood which has sold in the same market period. Market periods in the central Ohio area are a product of both the weather and school schedule.
Appraisers like to find a Like Property in the same neighborhood which has sold in the past 6 months but will often look at homes sold in the past year. When this is done, the review of past sales may span across market periods.
In central Ohio home sale prices tend to peak at their highest in the Spring—early summer, then decrease or remain level until the following year. This is a factor of supply and demand with demand being high in this Market Period. Market periods are important in determining a value for property as a Like Property which sold last December in the winter will typically have sold for less than what it could have if it were sold the in the following spring-early summer Market Period.
In an area where home prices are increasing, the home values tend to go up as time goes by. In an area where home values are decreasing, the home values tend to go down as time goes by.
When comparing the sale of a Like Property and there is a span across Market Periods, one should consider the effect this has and figure it in appropriately. If home demand is still increasing in the area, then one would expect the value of a Like Property to be increasing the following spring-early summer Market Period.
All homes have variation. This is because no two homes sit in the exact same place. No two homes are exactly the same. For each significant variation a value is placed on the variation and this is used as an adjusting value.
Significant variations between the home being evaluated, referred to as The Subject Property, and the property which sold, referred to as The Comparison Property, is determined by the person performing the valuation and an adjusting value placed on each variation.
The Subject Property , the home being evaluated for value, is a 3 bedroom, 2 ½ bath two story waterfront home and sits on the west side of the lake. The Comparison Property which recently sold for $850,000 is a 4 bedroom, 3 ½ bath two story waterfront home and a tributary to the lake.
What are the significant variations?
Based on the information in the example, the significant variations in The Subject Property are:
Next, a value is placed on each significant variation and then added or subtracted from the price at which The Comparison Property was sold. The value placed on each significant variation is based on past sales in the area where the most significant variation between two selling properties is the variation itself. For our example we determine the following value for each significant variation:
Taking the sales price of The Comparison Property which sold, the value of each significant variation is added or subtracted.
|The Comparison Property sales price:||$850,000|
|The Subject Property has one less bedroom:||- $20,000|
|The Subject Property has one less full bathroom:||- $15,000|
|The Subject Property location on west side of lake:||+ $80,000|
|The value of The Subject Property:||= $895,000|
The example above is a simple one. What really happens is that waterfront properties typically do not sell all that often. This being the case, finding a Like Property which recently sold can be difficult. In these situations the Market Period of sale becomes a significant variation in determining the property valuation. You may have to look at sales older than a year to find The Comparison Property and then perform the necessary adjustments.
These two determinations will aid in coming to an appropriate property valuation when Like Property cannot be found in the same Market Period. See The Central Ohio Real Estate Forecast where we publish the average price increase or decrease in home values each January.
Have you stood beside a lake and felt the breeze off of the water? It can be moist and chilly depending on the time of year. Have you ever smelled dead fish? Not pleasant!
Waterfront homes may experience these two things depending on where they are located in relation to the water. This is because wind tends to blow from the west to the east. This is a significant variation and one reason Like Property on the western shore of water tends to have higher values and homes on the east shore tend to have lower values.
Have you ever been on a friend’s patio or deck in the summer when the sun is in the west and you think, “It is incredibly hot with that sun, I can’t stand it.” Many people have had this reaction and seek homes which do not have their outdoor living space facing west. If your home is one where the outdoor living space faces west you have probably come up with a way to shade your outdoor living space. Homes on the water with outdoor living space facing west have this same issue as well. For this reason, homes which are toward the Western shore of waterfront property are preferred by buyers and thus tend to have higher values.
Estimating the value of a home is done every day by Realtors and Appraisers. Depending on where the home is located and recent sales activity it may be easier or more difficult to determine a property value. When placing a value on waterfront property it can be more difficult to due to unique significant factors. All of these unique significant factors need to be understood by the person placing a value on waterfront property.
Whether you are selling or buying waterfront property it is important to have an experienced Realtor assisting. The Selling Columbus team has the experience you want having performed over a thousand valuations on central Ohio property. We have been in the central Ohio area over 45 years and we know the market. Contact us when you are thinking of buying or selling property in central Ohio.
Like to find out more about property valuation? For over a decade we have published The Central Ohio Real Estate Forecast. Want to know about the value county Auditors place on property? Read our Insider Report - , The Auditor’s Current Home Value.
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