[photopress:lega_emc2_l.jpg,thumb,alignright]My engineer friends are asking off screen for more details on a “scientific” approach to valuing property. You know, something they can put on an Excel Spreadsheet 🙂 Here’s a fairly tried and true method of valuation here in the Seattle Area. This method was so accurate a couple of years ago, that many agents were using this calculation to list property, and many owners knew it and were insisting on this method of valuation. That was before Zillow came out of course 🙂

I do have to caution readers from outside of the Seattle Area and the State of Washington, that this may not be reliable in other areas of the Country.

Here in the Seattle Area we have little niche markets everywhere. West Seattle, Downtown Kirkland, North Queen Anne, Ballard on the Freemont Side, Crown Hill, etc… Every pocket of value is self contained and is often called everywhere around the Country, the “snob” factor. I sometimes call it the “nosebleed” section, particularly in “view corridors”. Every place I have ever worked has had many, many imaginary lines that determine value pockets. Like the little sliver of area that has the zip code of the lower valued area, but the school district of the contiguous higher valued area.

OK, my engineer friends are getting bored with all the words. Here goes. When I first arrived in the Seattle Area and was working over by Green Lake, it was well known that everything was selling at 1.3 X assessed value. “Everything” meaning “all things being equal” and the “good-average home” without a view. Flippers were looking for anything and everything they could get their hands on that was selling at or below assessed value and using 1.3 or more x assesed value as their “worst case” after improvements value benchmark.

The beauty of this method is that you can extract the factor from each pocket neighborhood, and then apply the factor to the assessed value. I’m going to use the mls, but Galen and others, if you let me know of a site that has sold data that includes the inside photos of the sold property, let me know, so I can give the tutorial pointing to sites the Average Joe can access.

I just sold a property that closed at 1.54 times assessed value. Prior to that sale the top rate for that neighborhood was 1.33 times assessed value or less. Agents sometimes hold the market value down on the seller side of things by pre-ordaining the snob factor. Sometimes I can extend the imaginary line and drag the snob factor ratio of 1.5 to 1.6 times assessed value over to the nearby area that has not gotten a fair shake by the local agents for too long a time.

Take all of the solds in the same zone, as in nearby homes of like kind. Like kind meaning you compare view properties to other view properties and non view properties to other non view properties. You don’t have to consider square footage or number of bedrooms, as the assessed value will take that into consideration by going up and down to accommodate the inherent differences. This method is often more accurate than using the number of bedrooms and square footage reported in the mls.

Take the sold prices of each home divided by the assessed value of that home. Once you get the range of value for that area, say 1.4 – 1.48 times assessed value, you look at the assessed value of the home for sale and multiply it by that given area’s factor. If you pay more than that, then you know you are at the high end of the value range and might have to hold the property longer to come out whole. If you pay at or lower than the low end of the range, you can likely sell it whenever you want and make a profit.

View property will generally go for 1.6 times assessed value. The problem comes with flip projects. Flip projects and remodeled homes have jumped to 1.8 to 1.9 times assessed value. These homes, while they may be worth the price, must be evaluated with regard to the improvements of the basic systems and not just the comsmetic changes. If the roof is three layers and the wiring is original and the basement is yukky, but the kitchen has granite counters and the bathrooms are remodeled and the home is staged…be very careful. To garner 1.9 times assessed value, the home should be “like new” not only based on aesthetics, but all of the main components and systems of the home as well AND be a view property.

By calculating the 1.? times assessed value, you can determine how picky to be about the inspection, how much is too much to pay and where you are paying for “snob factor”. If nearby homes are selling for 1.4 times assessed value or even 1.9 times assessed value, and your offer is 1.8 times assessed value…that should tell you something you may need to know.

OK you data crunchers out there. Time for you to test your valuation using the x assessed value method and compare it to your Zestimate. Let’s hear what you come up with. This should work in any part of the Country that does not re-assess based on sale price, such as California.