'Tis the season—the real estate season—and though this one isn't shaping up to be the boomer of two years ago, or even the desperate sell-off of last summer, people will nevertheless be buying houses. If you are one of these people, read on. It's a buyers market this year (or so my real estate agent tells me), but which house is right for you? Use this equation to find out—it works surprisingly well.

Real Estate Equation Two Rows

As you will notice, this equation is really just a way to quantify your opinions—and add some objectivity to the house-buying process! How important is something to you? Well, if you think a factor is a big deal, the equation weights it more heavily. Other than the basics of assigning ranks to factors like price and location and then adding everything up, the equation says the price of your dream house should be within about 25% of your ideal, with a little less being better than a little more. The opposite is true of bedrooms and square footage—a little more of each is better than a little less. Be careful with the term "W", for the fix-up Work you are willing to do—while you can't affect location or price with work, you can affect everything else and thus your Bob-Villa-ness is a powerful term (and a high value can turn a relative junker into your dream home). If you're not a contractor, stick to values below five. 

And don't be intimidated by the equation's length—once you get into it, you'll see it's easy! 

Also, this equation doesn't spit out absolute numbers—it's not a scale from 1-100 or anything. The scores are relative, so it's best use is in comparing a couple houses. Go home shopping for the day and then use this equation to see if the scores match your intuitive opinions. Actually, this is one of the more useful equations I've written and gives a fairly honest evaluation of which house best fits your (objective) needs.

As my wife is starting a PhD program in Santa Barbara, if anyone wants to sell a SB beachfront bungalow, 2B, 1.5ba for under $350k, please let me know (and then see a psychologist).


Calculate Your House Score

Real Estate Equation

Or, broken into two rows so you can see it better:

Real Estate Equation Two Rows

Again, don't freak out—once you start putting in numbers, you'll see it's cake.

The Variables:

•    In the blanks next to each question below, rank these variables 1-8 in terms of their importance to you (with 1 being the MOST important). 

•    ___ PI= Your ideal price
•    ___ L= How ideal is the house’s location? (1-10 with 10 being perfect—include proximity to work/play, desirability of neighborhood and schools, etc.)
•    ___ BI= Your home should have AT LEAST how many bedrooms?
•    ___ FI= Desired square footage (1,000 is small; 4,000 is huge)
•    ___ A= Aesthetics: how closely do the aesthetics of this house match your lifestyle? (1-10 with 10 being perfectly—include in this term how the house “feels” to you...or your significant other)
•    ___ R= Is this house in good repair? (1-10 with 10 being “newly built” and 1 being “Bob Villa needed”)
•    ___ S= How closely does this house match your desired special features (for example, wheelchair access, # of bathrooms, satellite dish, detached garage, hardwood floors, gourmet kitchen, air conditioning, view, fireplace, pool, etc.)? Rank this 1-10 with 10 being “it perfectly matches my desired special features”.
•    ___ I= How good of an investment is this house (1-10 with 10 being Santa Barbara beachfront bungalow for under $350k)?
•    W= How willing/excited/able are you to put work into a non-ideal house? (1-10 with 10 being “we are Bob Villa and Martha Stewart”)
•    PA= The actual price of this home
•    BA= How many bedrooms does this house have?
•    FA= The actual square footage of this house

For the mathematically inclined: if you want to add a factor that is not currently in this list, I'll bet you can figure out how (and don't forget to revise the ranks to 1-9, instead of 1-8). Good Luck!

Also, for a look at the economics of realtors, check out the book "The Undercover Economist" by Tim Harford. Disclaimer: I'm in no way connected to this book—just think it's cool.