Determining Property Value the Right Way

hi Phil offski here with freedom mentor.com I'm a full-time real estate investor coach and mentor and in this video I'm going to share with you how to determine property value it is a very misunderstood topic a lot of real estate investors get this wrong which is the audience I'm talking to but if you're a homeowner and you just want to know what your property's worth watch this video you're gonna learn a whole lot about that and I'm going to share with you where the confusion comes from and then how to get clarity alright now there is three main parts to this we're going to talk about first is how you value property how's that work so number one how is real estate valued and here's the great thing this is really simple because you already do it picture buying an iPhone on eBay before you would buy that wouldn't you try to look and see what other iPhones were selling for identical the one you want to buy right if you go to a grocery store and you want to buy bread and you can try to compare which one is the best deal you are looking at different breads right to try to compare so that process of looking at comparable sales is how you compare most items you buy to figure out if it's a good deal or if it's overpriced Real Estate's the same way you look at comparable properties and you look at what they sold for in comparison to the property that you want to know the value of and that's how you figure out what the value is it's really that simple so if it's so easy how come everybody get it wrong right not everybody but a lot of people well there are there are two main reasons when that happens the first is where they're getting their information from okay information source so I'll put on this Boris it's easy to fit where is the information coming from all right there's two places where it actually comes from and the first one is county records and county records is what can cause a lot of confusion let me talk about that County records okay so in every county in America what you have is you have different departments and two of the departments that we deal with for planning records is going to be the tax assessor's office as well as the recorders office or the Register of Deeds so we'll start with the Register of Deeds the Register of Deeds is the group that records deeds and other such documents and so that can tell you some interesting information such as what the property was what liens are on the property who the owner is how long they've been the owner when that deed was recorded so when they became the owner those sorts of things in some areas the county records and specifically the recorders office has sales information but not all of them now this is where this is where it gets a little squirrely okay some states are non disclosure states like Texas whereby they are not required to disclose the sales price on the deed that gets recorded in other areas it is disclosure so they will show it so states like Tennessee is the disclosure state so they always have a line on the deed where you're supposed to put in the sales price okay but there's more of that and I'll come back in a second there is other states that are called a strict non-disclosure states like New Mexico where there is no way it's required that there is no sales price on the deed there you go so certain states reveal sales prices at the recorders office level and some don't and that can be a huge huge hornet's nest and we'll get more into that in just a second okay so that's the recorders office the second is the tax assessor's office now the tax assessor their job is to figure out the the relative value of each property in their County so they can tax it and they can tax it as a percentage of the value as long as what type it is as well say if it's a duplex which could be considered commercial versus a single-family home that sort of thing so Tax Assessors are literally putting a tax appraisal on every property every single one so some look at that and say oh the tax appraisal that must be a good source of value and no let me tell you what happens to tax our prey the first thing is most homeowners are not willing to share every bit of news with Tax Assessors in other words if they add 900 square feet in the form of an extra bedroom and bathroom they may conveniently not tell the tax assessor why so they can keep their tax assessment lower so they can pay less taxes also in certain states there are homesteads or other kinds of policies which as you own the property you can elect that the tax appraisal can only go by up by a certain amount each year as a maximum and what happens is over the course of many years that tax appraisal can lag way behind the real value that makes sense so tax appraisals can be way off and then also the tax assessor is supposed to put the number of bedrooms bathrooms square footage and that sort of information as part of their assessment but they get that wrong all the time because they rarely get access inside a property and like I said before most property owners try to push down how many bedrooms and bathrooms they have because it'll reduce their overall tax appraisal so County Recorder's offices then both the recorders to the Register of Deeds and then the tax assessor these two you know comprise county records and county records can be way off that makes sense okay so if they're way off where do I get you know where do you get the rest the information from good question the MLS the MLS is the Multiple Listing Service it's controlled by the the realtors and more specifically each MLS is independently owned and they're literally there can be more than one in the same geographic area I live in Volusia County Florida there are three MLS systems in Volusia County so the MLS I'm going to just say collectively the MLS here but each one is actually localized and independently owned and it is the informations put in there by real estate agents and the great thing about the MLS is that real estate agents have this natural checks and balances system so that insures that the listing information of each property is accurate here's how it works let's say you're a listing agent you list the property if you put in the wrong bedroom bought wrong bathroom wrong square footage wrong anything someone's going to find out about it when they go show the property and they're looking at the listing sheet and they say hey there's not three bedrooms in this house there's only two and they're going to get upset with that listing agent and then that listing agent either is going to make the changes or get a fine from the MLS so what happens is you have this natural checks and balances this accountability system with the MLS so the data is just flat good it's real good now the MLS has other features that are wonderful it will tell you not only the exact sales price that occurred but also if there are seller concessions maybe if the seller paid for closing cost and that sort of thing because that really does play a role in the overall sales price so the MLS is where the data needs to come from in order to make these accurate comparisons but the MLS does have a couple of drawbacks it doesn't tell you what leans around the property it doesn't tell you who the owner is that's where the county recorders office can help you so really a great real estate investor who wants to truly understand the property is going to use the best or the the strengths of the county records in the strengths of the MLS I'm going to bring that information together to make the right decision but even if you have the right information you can still completely screw up determining property values so this is where the next part comes in and that is who is making the comparison who is comparing you know in this day and age there's a lot of people that love computers and computers can do a lot of great things they can calculate very efficiently very consistently a massive number crunching but computers don't see the bigger picture computers don't know when they have been programmed with a bug because they don't know how to look outside themselves and say hey there's a bug they can't tell if the numbers look wrong after they've calculated something and so what happens is we have a lot of people who want computers to make decisions for them when technically the best role of a computer is to help you be more informed so you can make great decisions humans are not computers we have this wonderful ability to do all sorts of things that at this point especially in the real-estate investing world technology is not available yet to to duplicate the human brain and so what happens is this the things like Zillow Trulia and so many other of these systems you know they've made a lot of headway and they're doing better and better all the time but they have massive weaknesses and one of those weaknesses is they're drawing all their information from the county records tax assessor is whether getting the bedrooms bathroom square footage which could all be wrong and then not only they're using that but they're then trying to figure out which properties are comparable and they're doing a circle around the property say a two mile radius but you and I both know that every part of the US there are pockets where if you go two miles apart they're completely different worlds right you can go from absolute the nicest part of town the complete ghetto in two miles and so but the computer doesn't know that Zillow Trulia I mean in fact there's a lot of other you can pay for some expensive stuff sightings data real quest that they're all getting their data from the recorders of the county route records and then they don't really have a good way to be able to match up neighborhoods and houses right so what if you're what if you get a bunch of new subdivisions interspersed with some really old subdivisions well you don't want to compare those brand-new homes with those super old homes it's just a 90 minute comparison what if there is brand-new built homes being dropped in the same neighborhood as an older neighborhood so the computer can't be the comparing mechanism the computer can't be the one to choose which are comparables true comparables that's what you're looking for that's what the MLS gives you some true comparables so again let's go back to our iPhone example if you're trying to figure out if the iPhone is a good deal or not you need to look at the identical iPhones that you're looking to buy and be able to compare what those sales were and so to get that apples to apples comparison in real estate you need to find accurate comparable sales and computers just can't do it I mean Zillow Trulia they can be an absolute disaster on values now that can actually work for and against you if the homeowner seized it and they think the property value say 20,000 and it's really worth a hundred thousand and that's what Zillow said it was twenty you know that may actually help you in making an offer but it can also work completely against you as well so these systems right here I see it all the time real estate investors they they don't know how to get access to the MLS they they don't know all this and so they just try to take shortcuts and they'll use Zillow Trulia they may even compare like three or four different online free systems to see what the property value is they may even throw in the tax appraisal it's real and they'll all average them together bad idea because all of these systems are all using the same bad data and they're also using the same bad circle radius comps in some cases and so they're all giving you numbers that are all bad really and that's the best way to describe it say what you want to do differently how you want to determine property values is this you want to get access to the MLS by the way I have an entire video on how to get access to the MLS for investors you can search that in youtube or go to my website check it out I'm and then you want to use these comps and in conjunction with what you learned in the county records again that won't help you necessary with value but it'll help you know like who the owner is and what liens they have against a property and then what you'll do is you're just like you would do if you were buying an iPhone if you're buying bread the grocery store get the most comparable properties picture you were going to buy that property and start to look at the comparables how do they compare with the subject property that you're that you want know the value of you know if it's a $300,000 was one of the comparables why was that one 300 and the other one was 275 what what made it different did this one have more square footage this will have an extra bedroom and you don't have to be scientific about it you don't have to you know do a detailed price per square foot because guess what buyers aren't doing that values are really determined by what properties sell for and who determines what they sell for the people buying the people making offers that's why you don't need to be scientific in many ways when it comes to understanding when you compare these things these comps together instead you want to just look at them all and then start to determine okay because you already know how to do this you already doing this in your daily life say okay this one whistles over 265 this was sold for three hundred and five hundred and ten what's the tip of string these two you know and then that way you can kind of come into a range of what it's really going to sell for in the real world and that's how you determine property values your Rd you already have the skill you just need to get access to the right information and make sure that you're doing the choosing of the comps not computers and if you do get lucky and then Zillow actually calculates correctly in your area from time to time great but don't rely on it you need to know on every deal as an investor exactly what the value is and not to be off ever I mean this is critical when you know what property values are then you can be a wise investor and you can make wise decisions on whether or not to invest alright one fill pussy-ass key with freedom mentor calm you can learn so much more about it by going to our website this particular subject I also have a blog article written so feel free to read that as well that will give you a lot more insight I even give likes to Zillow or it shows you where's mo talks about how bad their accuracy is in certain states like Texas they're like a one star out of five it's terrible but nothing Zilla can do about it and so I'm please check those out those resources and again Phil house feel free to mentor thanks for watching

Channel: Phil Pustejovsky

Views: 625,543

Rating: 4.824017 out of 5

Keywords: determining proeprty value, house value assessment, house worth, phil pustejovsky, freedom mentor

Id: fyvQHiKlh_g

Length: 15min 22sec (922 seconds)

Published: Fri Mar 15 2013