Jim Valentine: How to determine prices
There are many components in real estate that contribute to value. When you are trying to determine a price at which to list your home, it might not be as simple as just comparing it to the home down the street, especially if you have a unique property. Buyers are faced with similar challenges, how does one determine a fair price in a dynamic market?
The most common approach and certainly the first step to valuing property in residential real estate is the comparative approach. The evaluator — buyer, seller or agent — finds comparable properties that are listed for sale, sold or expired in the past six-month timeframe. Comparable properties should be approximately the same size, same size lot and have similar amenities. The solds provide a market value based on actual sales, but for market pricing, buying or selling, it is important to know here the market is and where it might be going.
Appraisers use this method, but they only use sold properties as their base for value. Agents, on the other hand, are looking for market changes; is it going up or down? Properties listed for sale can help with that perspective for that is what is available to buy, which is why agents will use them to help buyers and sellers find their way with pricing. If the market has gone up 5 percent and all the listings are priced accordingly, then you will likely encounter resistance if you submit a lower offer.
When comparing properties be sure to truly compare them. Two homes might be on the same size lot and of equal home size, but one has a shop building with 220V power. There must be an adjustment to get a true comparable evaluation. Other details to consider are the condition of the roof, carpeting, paint, landscaping, location, etc. Floorplans can come in to play as simply as two story vs. one story with the same square footage. In our market with many retiree buyers, two-story homes don’t achieve the same value per square footage unless the home is properly designed and priced for a young family with children.
Some properties or circumstances create an emotional tug on a property allowing for an adjustment in value not readily measured. These can include lake front location, a home being right next to a family member, spectacular view, etc. Such intangibles impact value, but not in the same manner for every buyer. Of what value is a view to a blind person? Perhaps an extreme illustration, but the point remains, we aren’t all the same and subjective items affect us all differently. The art of pricing is to determine the value of the intangibles as best you can to get the highest price, or to price it such that it will sell. Your agent will help you evaluate the intangibles and their impact on buyers that meet the profile of being a buyer for your home.
Buyers need to look at the same things and determine how many people view the property the way they do. If a major value component is too esoteric for most of the market, but it works for you, don’t pay too much if you don’t have much competition. Some esoteric features actually lead to a discounted offer because of those items.
Our advice: Don’t let your personal perspective affect market value unless you understand clearly that you are paying a special price because of your personal attachment to the property and its features. Step back and look at it from an objective perspective, what would another buyer think of it. This is not only important to have you price your offer, but you must consider how you will sell the property in the future. If you overpay for something too esoteric you might not get your money out, but you will certainly get the emotional return on your investment while you own the property. Which is more important to you?
There are many things to consider when determining a price in real estate. Take the time to get the right perspective and you will be comfortable with the pricing you arrive at.
When it comes to choosing professionals to assist you with your real estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704. firstname.lastname@example.org