Real Estate

Determining property value an art and a science

By From page HS3 | December 06, 2013

The online Seattle-based real estate brokerage Redfin reported that our Sacramento metropolitan region is the 16th speediest in home sales among 23 major metropolitan markets. During October, 28 percent of area homes were under contract within two weeks or less. San Jose led the October list with about half of the new listings going pending during the first two weeks and San Francisco was second with 43 percent.

Home sales in El Dorado County have been pretty speedy also. Of the 200 reported closed sales last month about 44 percent sold within 30 days, 21 percent within 60 days, 13 percent within 90 days and 22 percent took 120 days or longer to sell.

Brisk home sales are one indicator of a healthy real estate market, at least in our median price range of $355,000. However, selling homes isn’t a foot race. Often homes taking longer to sell will obtain a higher price than a quick sale at a lower price. All homes were selling faster at this time last year but at a lower price. During the summer of 2012, typical foreclosure listings were only listed five days before it became a pending sale but at an average price of $275,000.

The California Association of Realtors is anticipating a big increase in listings this next year. The big jump in prices over the last 12 months has rescued many underwater homeowners who were previously unable to sell. With very few short sales and foreclosure listings, equity sellers will be competing against each other for a projected modest number of buyers.

With the anticipated increase in listings, sellers should give some thought as to how correct pricing will determine how quickly their home will sell. Naturally, there are other factors that affect a speedy sale. Location is important but you can’t easily pick up a house and move it to another neighborhood. The home’s condition is also important. Some homes have that special “wow” factor. Staging a home has benefits although you can’t put lipstick on a pig. Pricing a home correctly takes into consideration all those factors.

When determining market value for a property, agents usually start with a base price by comparing what similar homes have been selling for in the neighborhood. Then they may add or subtract value points depending upon what special features the property does or doesn’t have.

Single level homes are a big plus; homes built too close to the street are a minus. Views can be a plus but steep terrain a minus. Hardwood floors and granite counters are pluses; white tile counter tops and vinyl flooring are minus. Big kitchens are pluses and small bedrooms minuses. Often homeowners will customize their home with special features like pools, outdoor kitchens and energy efficiency features. They are nice to have but generally won’t add a lot of value to the property. They are considered value neutral.

Since every home and neighborhood is different, agents may employ different pricing strategies when listing a home for sale. If similar homes in the same area are selling quickly, an agent may push the price up a bit testing the market to determine if buyers are receptive to a higher price. If values are stagnant or declining, it may be best to discount the home from where others have sold before neighborhood values decline further.

In addition to a home’s physical characteristics, there are other considerations when pricing a home for sale. How quickly the seller needs to sell can add or subtract a 5 percent adjustment to the suggested listing price. Often, as we have seen, the amount of debt against the home will control a floor price that the seller cannot go below. According to Zillow, about 10.8 million homeowners are still underwater, owing more on their mortgage than their home’s value. Naturally, the faster a home sells the faster everyone gets paid and most sellers don’t want to stretch out the home selling process anyway. They need to move forward with their lives. Living in a fish bowl while the home is for sale is inconvenient at best and, at worst, almost as invasive as a colonoscopy. It is best to get the process over as quickly as possible.

While the vast majority of agents provide sellers with an ethical valuation of their home, there are some who will purposely inflate their opinion of value in order to obtain the listing. This tactic is called “bidding.” Sellers naturally want to believe their home is worth more and will often fall into this trap with the agent who claims they can sell the home for a much higher price than what other agents have suggested or that can be validated by neighborhood sales. After the property fails to sell due to its inflated value, the seller is later forced to drop their price.

Personal preference will also play a role when pricing a home. Sellers are often too emotionally attached to accept an objective valuation and often agents are too optimistic about their pricing and marketing ability.

Correctly pricing a home isn’t nuclear science. It is the compilation of many variables to come up with a value that will be acceptable to a buyer and stand up to validation of an appraisal. Pricing is part art and part science. The best properties will not sell when priced too high and the worst properties will sell quickly when priced correctly.

Ken Calhoon is a real estate broker in El Dorado County and can be reached at [email protected].

Ken Calhoon

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