How to determine the fair value of a house

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

18 May 2025

Margaret Nyaboke sent me this one-line question: “How can I determine the fair price for a house?”. I asked her a few questions like size of house, where it is located, whether she is buying or selling, but she did not respond. Nevertheless, I will try to guide her.

First of all, the fair price of anything is the amount that the buyer and the seller have agreed. There is usually no mathematical formula for this. It depends only on how desperate the seller is for money and how desperate the buyer is for the thing on sale.

If you are thirsty and want to buy water, the seller might hike up the price and you will have no choice but buy. On the other hand, if the vendor hasn’t made any sale the entire day and you are not very thirsty, you can easily bargain the price downwards to the rock bottom. We do this all the time – nothing personal, just business!

In the case of houses, the easiest way to determine the price is to find out how much they are going for in the neighbourhood. Unfortunately, however, one house may not be similar to the next one. One may have higher quality finishing than the other. This method only gives a “bulk estimate”. Is it a few millions of shillings or tens of millions or what?

A more accurate method would be to find out how much rent the house is getting [or can get] and the multiply this figure by an appropriate factor. The value of the multiplication factor depends on the location of the house and the state of the economy.

In the middle- and upper middle-income areas of Nairobi, the multiplication factor is between 150 and 200. A house renting for, say, Sh 50,000 will sell for Sh 7.5 million to Sh10M. The higher the class of neighbourhood, the greater the value of the multiplication factor. Still, I must emphasize that even this factor is mostly arbitrary!

Twenty year ago, in the early 2000s, when the economy was depressed, the factor in those areas of Nairobi was around 100 to 120. Meaning that a house renting for Sh50,000 could be sold for Sh5M to Sh6M. I am not sure whether it the rents that have stagnated or the house prices that have skyrocketed…

Going outside Nairobi, the multiplication factor can be much higher because rents are way lower. I know some one who is paying Sh15,000 monthly a four-bedroom bungalow sitting on a one-acre plot somewhere deep inside rural Kiambu county. The land alone is worth over Sh10 million; do the math!