Advice: Determining the Value of Your Condo

If Zillow.com were right--and, having invested zillions of dollars in creating the nation's largest real-estate database, it darn well should be--you could own this view from my condo for $278,000. Dream on! And read on.

As a condo owner, I am constantly curious to know how much my unit is worth. Each year, I compare the fair market value to previous years and to similar condos, especially in my building.

Because, like most real estate, condos historically appreciate, this annual check-up makes me feel good about one of my largest investments. It also gives me needed perspective, usually reassurance, whenever the media report various "crises" battering the real-estate market. If the value of condos in Miami has plummeted 35% in the past year, why should I worry--if my unit has appreciated 5%, or even depreciated 4%?

Another good reason for a yearly check-up: If my unit, or building, or neighborhood is not keeping pace with others, I may want to consider selling or taking other action, such as upgrading my unit. For example, one agent estimates that by spending $5,000 or so to install a washer and dryer, I could increase the value of my unit by $15,000 or more. But, to do so, I'd have to rip up my bathroom and give up significant closet space. For now, I've decided not to act on her advice.

When I calculated the appreciation of my unit this past December, I was disappointed. For starters, its market value is lower than it was the previous year. And that's not all.

Over the seven years I have owned the unit, its total appreciation is more than $82,000. That's an impressive-sounding 25%. But that averages to less than 4% a year. As an investment, that's not good, especially when you consider inflation and the $12,000 I invested in upgrades.

Luckily, before I bought my condo, I thoroughly researched the unit's fair market value, including the cost per square foot compared to other units in the building. Armed with that valuable information and the negotiating skills of my agent, Debbie Maue, I was able to negotiate several thousands of dollars off the asking price. When I sell, that will be my saving grace.

For now, my greatest consolation: enjoying this magnificent view every day. (Okay, so it's not this sunny in Chicago every day!)

Appreciation of My Condo From 9/2000 to 12/2007

Date	Market Value	One-Year Appreciation		Total Appreciation
9/00	$327,500
12/00	$330,000
12/01	$360,000	32,500	10%	32,500	10%
12/02	$370,000	10,000	3%	42,500	13%
12/03	$370,000	0,000	0%	42,500	13%
12/04	$385,000	15,000	4%	57,500	18%
12/05	$400,000	15,000	4%	72,500	22%
12/06	$425,000	25,000	6%	97,500	30%
12/07	$410,000	-15,000	-4%	82,500	25%

The total cumulative appreciation for my unit at the end of each year is shown in this graph, created by Aimee Kirkconnell:

If you aren't already doing so, start giving your unit an annual check-up.

How can you determine the value of your unit? Here are three ways, along with my personal, biased rating for each:

1. BAD: Go to Zillow.com. You can go to Zillow.com and, as millions have, get a Zestimate. That is the worst idea of all. Why? Because Zestimates can be highly inaccurate, even dangerous. The site recently claimed to have decreased its margin of error, but condos are another matter. Seeing your Zestimate can give you a good laugh, if it didn't hurt so much.

When I checked mine (a 1,087-square-foot, 1BR/1BA at Lake Point Tower, for which I paid $327,500 in 2000), the Zestimate was $278,000! When I looked at the details, the year of the most recent sale in Zillow's database was January 2003, for $186,000. No comparable unit in my building sold for that low even back then. I have read many other accounts from people who have experienced similar shocks. (Let's call them Zhocks!) In five years, Zillow may have created a valuable tool. For now, avoid it. Zestimate for 1BR/1BA at Lake Point Tower: $278,000.

2. GOOD: Visit ChicagoCondosOnline.com. On the Web site I created for buyers and agents, you can find the median sales price of your unit type, based on sales in the previous year. This is especially effective if you live in a high-rise, in which many units of the same type are sold each year. On the Super Search page, enter your address. On the Building Profile, find the name of your unit type and find the median sales price.

Although this is a good place to start, it's just that. The median sales price doesn't take into account the condition of your unit, upgrades, views, or the number of units of that type sold in the previous year. Ours is superior to some comparisons I've seen online that compare your unit to those in buildings in other parts of the city. And those units are often a different size. Square footage is vital in determining value. 2007 Median Sales Price for 1BR/1BA Diplomat at Lake Point Tower: $426,250.

3. BEST: Ask an agent for a Comparative Market Analysis (CMA). Without incurring any obligation, you can ask any agent for a Comparative Market Analysis, aka CMA or "Comp" (for Comparable). The agent can quickly run the numbers on the Multiple Listing Service, searching for prices of solds and actives (for-sales) of units like yours.

Some agents are better at choosing units to compare to yours than are other agents. An agent who has recently sold units in your building might have an edge, because he or she may have been inside comparable units and know their condition and upgrades, which will have affected the sales or the asking price.

At minimum, ask the agent for a list of all sales and actives in your building, so you can examine them. From that list, you can calculate the market value per square foot. If the agent preparing your CMA doesn't ask about the condition of your unit and upgrades, go elsewhere. If the agent gives you a range, pin him or her down by asking: If I list my unit today, to sell within 120 days, what price would you recommend?

My experience. In December, I asked three agents for an estimate. It was like pulling teeth. One still has not responded. In several e-mail exchanges with the other two, I received snippets of information, some of it inaccurate, some misleading. I finally gleaned enough information to settle on a conservative estimate of $410,000. CMA estimate for 1BR/1BA Diplomat at Lake Point Tower: $410,000.

Don't feel shy about asking at least one agent for a CMA once a year. And don't feel that if you get one, you are obligated to list your unit with that agent. Agents offer free CMAs as a standard, and effective, marketing tool. They should be happy to help you.

Sure, they would appreciate your business, but when it comes time to list your unit, pick the best agent, not necessarily the one who spent 15 minutes preparing your CMA. In the process of getting a CMA, you'll learn a lot about the agent's knowledge and professionalism.

Hire an appraiser? Not worth the expense. When you're ready to put your unit on the market, there's a fourth option, of course: Pay $350 to hire a professional appraiser. But there's no reason to do that for an annual check-up. And my experience with appraisers isn't all that good. More about that in a future post.

Ideas for condo managers & directors: As part of your responsibility to improve the value of your property, consider calling in one or more agents (or an appraiser) each year and asking for a CMA for the units in your building, perhaps for the entire building. Decide which buildings in your neighborhood are "comparable." Then, establish a benchmark value and track it each year to see how you're doing.

While you're at it, ask the agent (or appraiser) for suggestions on how to improve the value of your property. Agents get great feedback, both from prospects who buy and from those who walk away and buy elsewhere.

Idea for agents: If I were an agent, I would offer that service (establishing benchmarks for condo associations, tracking values and appreciation annually, and advising associations how to improve values) to any building I farmed, or wanted to. Wouldn't that be a great marketing tool? If any agent has tried it, please let us know.