Do Your Own Appraisal

There are a lot of way of determining the value of something. For property I'm specifically purchasing, I'm looking at a few different ways:

1. whatever someone will pay for it,
2. potential returns on it as an investment,
3. the price people have paid in the past,
4. opportunity cost - what could I do with this money that would bring more joy,
5. professional appraisal

While I'm waiting for the results of my professional appraisal, which should be available in a few days, I'm going to dig into some of the past property prices in the area to try to assemble a sum-of-parts appraisal of the property value.

To keep myself honest, I'll publish this post now, 2 days before I get back my appraisal. It'll be fun to see how far off I am from the official value of the property.

"A qualified appraiser creates a report based on a visual inspection, using recent sales of similar properties, current market trends, and aspects of the home (e.g., amenities, floor plan, square footage) to determine the property’s appraisal value." - Investopedia

To unpack that a bit: the appraiser looks at the price of comparable properties (usually $ per square foot) and then adds or subtracts based on features of the land. A house would be the biggest driver of value in a lot of cases, but in the case of bare property with no structures, other things would be important - like access to amenities, water frontage, zip code, buildability, access to electric, water, sewer, and paved road.

I am evaluating the value of the property I've put an offer in on by holding most of those features constant and focusing on acreage (square footage) and water access. Here are the steps I went through.

1. Find Comps (Comparable Properties)
   Find 10 to 15 recent sales in the area using Zillow and filtering for "Sold." My "recent" was < 2 years, but in hotter market I would have kept it <  9 months. I had difficulty finding enough sales, so I included 2 listings that have been listed in the last couple months but not yet sold.
   
   To reduce the amount of variables, I eliminated any properties with direct water frontage, or with no electric, road access, or obvious buildability issues (steep slope, flood zone, not zoned residential). These are too different from my property and will create too much confusion
   
   
2. List these properties with their key features:
   - Price
   - Acres, converted to square feet
   - Lake access (y/n)
   
   <3 HERE COMES MATH <3
   
   
3. Calculate the average price per square foot for the properties *without* lake access. 
   
   

   Property	Price	Square Ft	$ / Sq ft
   A	$69,000	220,000	$0.31
   B	$48,000	220,000	$0.22
   C	$30,000	70,000	$0.43
   D	$30,000	30,000	$1.00
   E	$29,000	236,000	$0.12
   Average			$0.42

   
   
   
4. Create another table of the properties with lake access, and calculate the separate value of the acreage (by using Square Ft x Average value per square Ft calculated above), then subtract it from the price to get the value of the lake access:
   

   Property	Price	Square Ft	$ / Sq ft	Land Value (Sq Ft x $.42)	Lake Value (Price - Land Value)
   F	$59,900	9,100	$6.58	$3,792	$56,108
   G	$89,900	41,000	$2.19	$17,083	$72,817
   H	$27,500	10,000	$2.75	$4,167	$23,333
   I	$89,500	40,000	$2.24	$16,666	$72,834
   J	$62,000	18,000	$3.44	$7,500	$54,500
   K	$57,000	30,000	$1.90	$12,500	$44,500
   L	$50,000	10,500	$4.76	$4,375	$45,625
   M	$73,900	73,000	$1.01	$30,416	$43,484
   Average					$51,650

   
   
5. Applying these variables to my property let me estimate its value based on a combination of acreage and having lake access.
    49,000 sq ft x $0.42 = $20,416 value of the land, add $51,650 for the value of a lake means I estimate my property value at $72,066.
   
   
6. Finally some sanity checks: 
   
   Comparison to Highest and Lowest using the best and worst values per square foot and for lake access instead of the average.
   *For this I excluded properties D and E, which are extreme outliers on land value.
   

   Price	Square Ft	$ / Sq ft	Value of Acreage	Value of Lake Access	Value (Fair Price)
   Base	49,000	$0.42	$20,416	$51,650	$72,066
   Low	49,000	$0.22	$10,691	$43,484	$54,175
   High	49,000	$0.43	$21,000	$72,817	$93,817
   Average					$73,353

   
   Listing value of my property: $70,000 (listed for >6 months and just started to receive interest during the Covid rural real estate boom)
   
   Tax assessed value of my property: $85,000 (this municipality is known for high tax appraisals)

So, in summary, this exercise has resulted in a value that is 3% higher than the listing price, but 11% higher than I offered. I believe my appraisal to be a little on the high side, but I'll wait to see what the professional says! This will at least give me a basis for judging the appraiser's result, as well as a final basis for determining whether I should go through with the purchase.