How to evaluate an apartment

How to Evaluate an Apartment Before Selling: Why Relying on Prices of Past Transactions Is a Mistake, and What to Do Instead

Setting the right price for an apartment is the most important and most challenging part of working with a property during a sale. The paradox is that sellers are often satisfied precisely when they sell at an undervalued price, because everything happens easily and quickly, whereas inflating the initial listing price can lead to missed opportunities, sluggish demand, and even the loss of a client who will keep changing real estate agents until the market grows to the amount they have set.

Actual Prices of Past Transactions

It is commonly believed that valuation should be based on the prices of actual completed transactions. Many people do not know that, for a small fee, anyone can find out in the land registry at what price you sold your apartment, to whom, and when. There are startups that collect this information and sell it to market participants in the form of so-called price maps (cenové mapy). At Gethome, we do not favor this approach, and here is why:

1. It does not take into account real-time demand dynamics. From the moment the seller and buyer shake hands to the publication of data in the land registry, 2–3 months pass. However, we need to find a buyer now, not 3 months ago.
2. Currently available services do not contain complete information about the comparables included in their databases. They can see the address and some area data, but that is roughly half of all the important parameters. An apartment with a large terrace and one without a balcony must be valued differently; an apartment with parking and one without parking in the broader center of Prague may differ in price by a million, yet price maps sometimes do not even make it clear whether the building is panel or brick.
3. The reports also include unusual transactions: for example, the transfer of a cooperative apartment into the ownership of a cooperative member, the transfer of an apartment from a legal entity to its founder, and other situations where the price in the purchase agreement is not a market price.
4. The picture is distorted by large development projects: in a rising market, prices in such projects are fixed one and a half to two years before the data appear in the land registry, and within a short period dozens or hundreds of contracts in the same location with outdated prices pass through the registry.

With this in mind, price maps can be used as a verification tool, but only with caution. The quality of the input data will have to be checked manually.

Comparative (Market) Method

International valuation standards recognize three methods of asset valuation: income, cost, and comparative (market). The method to choose depends on the purpose of the valuation and the nature of the property. The apartment markets in Prague and other more or less large cities in the Czech Republic resemble the definition of a perfect market from economics textbooks: many sellers and buyers, all acting independently and possessing complete information. For them, for the purpose of determining the real sale price of a property, the comparative method is best suited, as it essentially models the behavior of a buyer who is not limited in choice.

Therefore, at Gethome we use the comparative method based on the current public offering of similar properties.

How to Use the Comparative Method

Here is a step-by-step guide to applying the method:

1. Select a sufficiently large number of comparables. For apartments in Prague and houses in the suburbs, it is always possible to gather at least 10 truly similar properties. We recommend choosing comparables with an area of plus or minus 7 m2 from the target property, in buildings of the same structural system (panel, brick, block-monolithic). Each comparable will be a new row in our table.
2. Create a table like this.

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3. Fill in the data for each comparable. Particular attention must be paid to the actual floor area of the property itself and its appurtenances. In listing titles, sellers often use tricks and indicate the total area of the apartment, basement, and balcony combined. The actual areas are usually found in the description text; sometimes they can be found in the floor plan in the gallery. Listings with poor descriptions, where the area details are not disclosed, should preferably not be included in the comparison, or only those with neither balcony nor basement, where nothing can distort the data.
4. Calculate prices in crowns for all improvements and additions:
   Balcony, loggia, terrace: roughly 30% of the price per square meter of the apartment, rounded to tens of thousands of crowns, multiplied by the area of the balcony. For very small balconies and very large terraces, use common sense and ask yourself: how much more would the average buyer pay for an apartment with such a terrace compared to one with a small balcony or none at all?
5. Lawn: open cenové mapy stavebních pozemků and take approximately that price per m2, but slightly lower — after all, this is not land ownership but an exclusive right of use.
6. Basement: roughly 50% of the price per square meter of the apartment, rounded to tens of thousands of crowns, multiplied by the area of the basement. For a very small basement, you can take even 80% of the price per square meter of the apartment, and for a very large one 25–30% is sufficient; the control question is the same as for balconies.
7. Subtract the cost of all improvements from the listing price and obtain the “bare” price of the internal floor area of the apartment. Divide this by the apartment’s area to get the price per square meter of the comparable.
8. ‍Now all that remains is to multiply our median by the floor area of the apartment and add the prices of the improvements of the evaluated property.

Filling in the coefficients is the most creative part of the work. This is where market knowledge, observation, and experience are essential. A seller may adore their kitchen, having personally designed it for themselves, used it daily for years, and spent time there with loved ones, but for a buyer it is used appliances and cabinets with unfashionable doors. As a rule, sellers’ emotions are the main reason that prevents them from correctly setting the price of their property.

Conclusions

Selling real estate is not an exact science, and even such a formal method does not allow one to determine with 100% accuracy what the exact market price is — neither more nor less — that will allow the property to be sold within a reasonable time. However, it does allow you to set a starting price so that from the first days of listing you begin receiving calls and can soon assess which direction to move in next.

If you are considering selling your property and would like to receive an independent professional opinion on its market potential, write to us via the contact form on the website, and we will get in touch with you.