The Flock Advantage: Our Data-Driven and Transparent Approach to Asset Valuation
Published March 11, 2025Share this article
In real estate investing, knowing how to value an asset in a shifting marketplace can be the difference between a profitable venture and a costly lesson. Unlike stocks, which can be valued using readily available market data and standard metrics, real estate valuation requires more effort, local knowledge, and an understanding of market dynamics. This additional work can offer greater rewards for those willing to invest the time and resources.At Flock, precise asset valuation forms the foundation of our SFR Fund investment strategy. Unlike traditional buyers who may make emotion-based decisions, Flock relies on data-driven valuations that precisely determine an asset's current market value. This systematic approach ensures all transactions occur at fair market prices.
Common Valuation Methods
Successful real estate investing often involves understanding multiple valuation methods, as no single approach is universally perfect. While three well-established methodologies—income, cost, and sales comparison—are commonly used in the industry, Flock utilizes the comparison approach to deliver accurate asset valuations for its SFR Fund. This relative valuation method compares properties to similar assets, unlike absolute valuation methods, which examine an asset's intrinsic value based on income potential or replacement cost. The income approach is another key method for evaluating properties, focusing on an asset's income-generating potential typically relative to a benchmark index (e.g. ten-year treasury). Analysts using this method project rental income, subtract operating expenses, and apply market-appropriate capitalization rates to determine value. It emphasizes an asset's ability to produce consistent cashflow. The cost approach is often useful for newer properties or those with unique features that complicate direct comparisons. It calculates value by adding land value to construction costs and subtracting depreciation, establishing a baseline that can prevent overpaying in competitive markets. While this approach has merit in the industry, Flock exclusively employs the sales comparison method to ensure consistent and market-relevant valuations.The sales comparison approach analyzes recent sales of comparable properties ("comps") to establish market value. Our team, leveraging a suite of algorithms, identifies similar properties that have recently sold in the same area, then adjusts for differences in specific characteristics. By focusing on this method, Flock ensures its valuations reflect current market conditions with precision and reliability.Factors Influencing Asset Value
Flock's valuation process recognizes that an asset's worth transcends basic metrics, using four key adjustments to refine assessments: unique physical location, asset condition, distinctive asset characteristics, and asset price appreciation at the census block level for selected comparables. The first adjustment—unique physical location—acknowledges that sites within the same neighborhood vary in desirability. For instance, a home backing onto powerlines typically commands a lower value than one adjacent to a park or greenspace, even when other factors match, ensuring location-specific impacts are accurately reflected.Physical condition, the second adjustment, directly influences value. Flock conducts a 272-point inspection of each asset, evaluating structural integrity, systems condition, roof lifespan, deferred maintenance, and potential issues like water damage. An asset in excellent condition commands a premium, while one requiring significant repairs receives a downward adjustment, reflecting both its current state and anticipated repair costs.The third adjustment, unique asset characteristics, accounts for features that distinguish an asset, such as additional garage space, an upgraded kitchen, or other enhancements. These attributes can significantly increase value beyond standard comparables. For example, an asset with a modern, high-end kitchen may warrant an upward adjustment compared to a similar home with outdated fixtures, allowing Flock to precisely calibrate valuations based on distinctive amenities or improvements.The fourth adjustment incorporates asset price appreciation at the census block level for comparable properties sold previously. If a comparable asset sold for $200,000 three months ago and its census block experienced 2% price appreciation, Flock values it at $204,000 in today's market. This ensures valuations reflect localized price trends, improving accuracy for comparables sold over time.By integrating the comparables valuation approach with the four core adjustments—unique physical location, asset condition, census-block-level price appreciation, and unique asset characteristics—Flock produces valuations that precisely reflect each asset's market value and distinct attributes.Tools and Advanced Risk Management
Many real estate investors fixate on asset yields without analyzing the drivers of long-term returns, or they overleverage their investments, creating substantial risk. We've developed sophisticated methodologies to avoid these common pitfalls.True to our commitment to transparency, Flock provides all underwriting data to our customers—including comparable properties, detailed adjustments, and asset price index information. This gives investors complete visibility into our valuation process and builds mutual confidence in our investment decisions.To ensure nothing falls through the cracks, Flock employs an exception management system to ensure that valuations deviating from standard parameters receive supervisory review before customer presentation. This process includes properties with low-quality similarity scores (indicating limited comparable properties), properties where valuations differ from automated valuation models (AVMs) by more than 10%, and any asset valued above $600,000. Additionally, all portfolios exceeding a $600,000 valuation undergo managerial oversight and control.Measuring Success
Flock's valuation methodology is ultimately measured by its long-term accuracy. We rigorously monitor performance through post-sale analysis, comparing our valuations against third-party appraisals. Importantly, every asset in the Fund undergoes mandatory third-party appraisal every two years, ensuring continued valuation precision. Additionally, KPMG audits the Fund and asset valuations every year for third-party validation. In the second half of 2024, Flock had 115 properties appraised. These properties carried a book value of $31,069,730, while the appraised value came in at $31,245,500—a modest increase of 0.57% over book value. Our Valuations team carefully examines each appraisal to identify any sources of variance, incorporating these insights into our model. This continuous feedback loop ensures each subsequent valuation benefits from the accumulated knowledge of all previous assessments.Why It Matters
Real estate valuation balances art and science, utilizing numbers and calculations while requiring nuanced market knowledge. Success depends on thorough research into local market conditions, asset characteristics, and economic trends, demanding both analytical rigor and qualitative judgment.At Flock, we blend traditional valuation methods with sophisticated analytics and ongoing refinement. Our valuation approach forms the foundation of our investment philosophy, shapes our acquisition strategy, and powers our financial performance.In today's challenging real estate landscape, our sophisticated and transparent valuation strategy provides a significant advantage. This approach fulfills our commitment to openness for both prospective clients and existing customers, while enabling us to build a sustainable, high-performing portfolio of single-family rental properties.Landlords, retire and minimize taxes.
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