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While some agents might present sellers with a wad of
printouts and offer a ration of verbiage about the expected price range, others
take a more direct approach and ask the seller what price he would like.
Still others will check with the local tax assessor's office, deferring
the decision on the home's value to the assessor. None of these methods is satisfactory.
You will need to prepare an "appraisal style" market value
analysis. The first step in the
process is finding three (or more) similar sold properties.
Similar does not mean exactly the same.
A proper choice requires judgment and experience but the ideal homes are
within a mile; have sold within the past six months; and are the same style,
two-story, rancher, or split-level, for example.
The choice of comparables is sometimes obvious, sometimes nearly
impossible. Properties currently
under contract, sold but not yet settled, can be used but you must verify the
contract price, seller concessions, and any extraordinary details with the
listing agent. Properties currently for sale cannot be used: They will
only predict a price at which a home will not sell since these properties have
not yet sold themselves. Do not
fall into the trap of spending time and effort predicting a price that is too
high and which will only keep the home on the market unsold. It is easy to find a price that is too high without all that
complicated analysis stuff. Just
ask the seller! By comparing the
home with sold properties you will be setting the stage for the home to be sold. The contract prices of comparable properties that sold more
than a few months ago should be adjusted for time, which is for appreciation or
depreciation. This adjustment will
not be required in a market in which prices have been moving very slowly.
Next, significant differences between the seller’s property and each
comparable property must be identified and dollar adjustments made.
Dollars will be added to the contract price of a comparable home for
features the seller’s home has but the comparable home does not have.
Think of this procedure as "buying a deck for the comparable"
to make it equal to the deck the seller’s home already has.
Dollars will be subtracted from a comparable's contract price for
features it has but your seller’s property does not have.
Think of this procedure as "taking the value away from the
comparable" for its two car garage that the seller’s home lacks. The list of features that make a difference is almost
endless, but items with a value less than about $500 usually can be ignored.
No adjustment, positive or negative, is required for any feature that
both the seller’s home and the comparable property have.
Values assigned to features are a matter of judgment.
They should measure what today's buyer will pay for that feature in a
similar home. Values are not the
original cost of the feature, nor its replacement cost today. The classic example is a $50,000 in-ground swimming pool,
which is often found to be worth only $10,000 or $20,000 to a typical buyer.
If you are uncertain about the market analysis procedure, your confidence
will grow with experience. Yes, you
will almost need to become an appraiser, so take all the appraisal courses you
can find. When the contract prices of the three comparable
properties have been adjusted properly with appropriate positive and negative
values, you will have three individual estimates of the subject home's market
value. These three numbers should
be in a reasonably tight range. Using
experience and judgment, you can suggest a single expected contract price for
the home. This figure need not be
an arithmetic average of the three estimates nor the median value. This market value analysis method, when performed properly,
will accurately predict the price you should expect on a final contract.
It is not the asking price, determination of which will be discussed
later. The method of analysis
described above is called the sales comparison approach.
For the sake of completeness, there are two additional methods for
determining market value: The replacement cost approach, and the income
approach. In most major markets,
neither of these methods is used widely as a primary method to value residential
resale real estate. Market value
analysis is not only a very technical process, is a critically important step in
the home selling sequence. Get it
right and your listing presentation will shine. |
