Valuation Accuracy Exercises

Select a property you are considering purchasing or one recently sold in your market. Create three different comp sets: Set A uses the three most similar properties regardless of sale date (within 12 months). Set B uses the three most recent sales regardless of similarity. Set C uses the three geographically closest sales. Perform a full comp adjustment analysis for each set and compare the three resulting value indications. The spread between the three values reveals how sensitive your conclusion is to comp selection. If all three sets produce values within 5% of each other, your valuation is robust. If the spread exceeds 10%, your valuation uncertainty is high and additional research is needed.

Obtain an appraisal report (from a recent purchase, refinance, or online sample). Review it with a critical eye, checking for: (1) Are the comps truly comparable in size, age, condition, and location? (2) Are adjustments consistent and supported by market data? (3) Are there mathematical errors in the adjustment grid? (4) Does the reconciliation logically follow from the approach results? (5) Are the photographs of the subject and comps consistent with the reported conditions? Document every error, inconsistency, or unsupported assumption you find. This exercise develops the critical analysis skills needed to evaluate appraisals and challenge them when necessary.

Select five properties that sold in your market in the past 90 days. For each, record the Zillow Zestimate, Redfin Estimate, and actual sold price. Calculate the error for each AVM (AVM estimate − sold price) and the percentage error. Determine which AVM was more accurate for your specific market and whether either AVM consistently over- or under-estimated. This exercise calibrates your understanding of AVM reliability in your target market. Exercise 4: Build ARV with Contractor Verification. Select a property needing renovation. Create your own ARV estimate using comp analysis. Then hire a contractor to provide a detailed scope of work and cost estimate for the renovations needed. Compare the contractor's cost estimate to your initial assumption. Build the ARV model with the verified contractor costs and determine if the deal still works with realistic renovation numbers. This exercise reveals the gap between estimated and actual renovation costs—a primary source of investment failure.