Pothole #1: Pricing Your Home

1. Assessments: The tax assessor compiles general data about about home sales in specific areas in a jurisdiction looking back the last year. Yes, the last year. County records are incomplete, contain very little detail and is fraught with error. The assessor has no way to evaluate the quality of a property; condition, how well it is maintained, amenities, or any other qualitative measures. When was the last time an assessor visited your home to determine these things? Never! Markets change and can do so rather quickly. Your assessment has everything to do with generating revenue for the jurisdiction and always lags current market conditions. The average Loudoun County home sales price went up 23% last year. The average assessed value went up a bit more than that. Some individuals more, some less. There was strong market demand the first half of the year. Prices rose rapidly. There has been extremely week demand for the latter part of the year. Demand drives market value. The assessor doesn't have it. If anything, if you believe your assessment is too high, appeal it!
   
   
2. Appraisals: Appraisers have a little better handle on market value. They visit the property, take measurements, take pictures, note features and amenities, have opinions on quality and condition and are out in the market and have a pretty good idea of what's happening. They see lots of homes. They approach residential value from two perspectives, current cost to build (cost models that take into account lot, size of home and amenities) and comparable properties that have sold (usually in the last six months or so). The are also looking backward. Appraisers have algorithms and formulas for adjusting value based on comparisons of location, lot size, square footage, age, condition and amenities. Banks base their loans to buyers on an appraisal. But again, they are looking backward. A market value appraisal performed for a seller 3 to 6 months ago does not reflect current demand. So, we need to be careful on how we use it, if at all.
   
   
3. Comparable Market Analysis (CMA): This is the method used by most real estate agents. It is not only a comparison of similar properties that have sold (backwards looking in time), but also a comparison of similar properties currently on the market. We also look at location, condition, size, quality and amenities as well as time on market (an indicator of market condition). Knowledgeable, experienced agents will not provide a specific market value. Instead, they will provide an approximate range of potential value. We will also take into account buying patterns of consumers. For example, wood floors, upgraded cabinets and appliances, granite or stone counter tops, finished basements and home theaters are in strong demand. It is expected in certain price ranges. And, in a buyers market homes that have these features will be the first to sell everything else being equal including price. So, if a home does not have these, a much lower price is what will attract a buyer. Adding these amenities will not necessarily allow you to set your price higher than comparable. Adding these may, in fact, simply allow you to compete with other properties on the market that do have them. Bottom line: CMA's do not set market value...they are just estimates.
   
   
4. Zillow: New, exciting, cool, presents lots of information. Zillow bases their Zestimates on public records. See Assessments above. End of story for Zillow.
   
   
5. Neighbors, Family, Friends ET Al: These lovely trusted people have opinions. If they are not real estate agents or appraisers that have not done the necessary homework, they don't have the data. Respect their opinion but don't listen.
   
   
6. All of the above (except #5): All of these are helpful in estimating market value and we use all of them. We show potential clients how we use each of these to "triangulate" determining the most probable range of value. We use our market data studies, in general, to advise clients on what to expect. In a buyers market, sellers would be advised to set their price lower in the range. In a sellers market, higher in the range. Of course, competitiveness of the property plays a big factor as does the market price range sellers are in. Entry level properties have more potential buyers, high end properties have a significantly smaller pool of potential buyers. Of course, there are other personal factors to consider such as how fast a seller needs to sell for whatever reason.
   

Sellers are not only competing with other sellers, they are competing with new home builders. In our current market, new home builders are offering huge incentives to buyers to move their inventory. These include all the bells and whistles mentioned above and/or CASH.

The conclusion? Pricing and presentation are everything in attracting buyers. Estimating market value is as much an art as it is a science. Be prepared to be logical and realistic above all else. Our job is to apply the art to the science and help sellers get the highest value that the market will provide.

Here is some other interesting and relevant reading:

Balanced market creates new approach to home selling

Previous listing strategies may backfire in 2006
Monday, February 20, 2006
By Dian Hymer | Inman News

There are plenty of home buyers intent on buying while they can still lock in a relatively low mortgage rate. So, the 2006 housing market should present good opportunities for sellers who understand how to maximize profit in this new, more balanced, selling environment...

The first step is to start thinking like a buyer, not a seller. Although buyers are anxious to buy before rates rise further, they know that the appreciation rate is subsiding.

When the market is rising quickly, buyers are less concerned about overpaying because they're sure they'll recoup the excess payment within a few months because of robust appreciation. This was the psychology of last year's buyer. Now, buyers are much more concerned about value...
Read the whole story here.

And from the Times publisher, Mollie Wasserman, this and other insights from her previous blog about using information:

What the Internet Can and Cannot Do

It is often said that "the only thing new in the world is the history that you don't know". This saying kept going through my brain last week when a new home valuation web site named Zillow was launched to a lot of buzz. The press, as usual, carted out the same tired (and wrong) prediction that it has made for fifteen years: that home valuation sites like these will put Realtors® out of business or at least greatly reduce our fees.

Actually, over the last dozen years, the opposite has transpired: it doesn't matter whether you are talking about law, medicine, accounting, mortgage or real estate; the more that the public uses the internet to gather information, the more they turn to professionals before they make major decisions. That's because there is a huge difference between gathering information and interpreting it.

Over ten years ago, I penned a Real Estate Internet Warning that seems even more relevant today than it did then:

REAL ESTATE INTERNET WARNING© Despite advertising claims to the contrary, the internet is NOT an experienced Real Estate Professional. It cannot consult, counsel, advise, have knowledge of local laws and market conditions, make judgments, "own" the result, or most importantly, understand your individual goals and needs and care about you as a Client. Furthermore, while the internet can provide information, it cannot interpret it. To obtain an accurate assessment of any data you're receiving online, please contact us.

Mollie Wasserman (The rest of the article here.)