PROPERTY VALUATION

There can be a difference between “price” and “value” when it comes to real estate.

There are many factors we consider when determining market value.

The right price sells. The wrong price doesn’t.
Value is in the eye of the beholder.
The market is what the market is.

There can be a difference between “price” and “value” when it comes to real estate. What one person considers high or low “value” may not match what someone else thinks. “Price” by contrast, is the center of the discussion between buyer and seller. Price quantifies value. Price is a function of market. The trick is to align price and value to the satisfaction of both, so that each accepts that the price agreed fairly reflects market.

Here are some of the factors we consider when determining market value

Sales of Similar Properties
Given that no two are alike, we quantify the differences between them. This enables us to conclude “if that property were the same, what would it have sold for?”
Pending Sales
Current recent sales that have not yet closed are often better indicators of the present market than sales from many months ago. In Anchorage, most properties sellers at or close to its list price at the time, so the list price is often the best indicator.
Market Absorption
How many homes of this type are selling each month? How many are currently for sale? Divide the latter by the former for an absorption rate. For instance, 60 similar homes for sale in a market segment that’s been seeing six sales per month represents 10 months of inventory. In order words, if no other homes like this came on the market and they keep selling at this rate, all would be gone in 10 months.
Competing Listings
Where would the property in question stand against its competitors at any particular price? Given differences between them, would the property have something close to the highest appeal, or lower? How soon could the home be expected to sell? For instance, if the home in the example above was better than all but five, it should sell in about a month.
Current Market Trends
Opinions that grow from market history such as comparable sales, absorption and competition must be fine-tuned by what the market is now doing. Past history is predictable only in a stable market. If supply is tight and demand is high, prices are rising. Sellers in that type of market can price optimistically, expecting that the market may continue to rise and reach that price. By contrast, in a declining market, sellers must price below the current market. Otherwise, later in a transaction the buyer may walk away in favor of a different property that is now at a more attractive price!
The Mood of the Market
This highly subjective sense of the market is something that real estate professionals with years of experience can often dial into quite reliably. What Bethany and Niel may say about the current mood is often taken seriously when an immediate or strategic decision is being considered. For instance, a seller’s home hasn’t sold during the first month, and there haven’t been many showings. Should the price be changed to reposition it? One could picture different answers, and we have given each of these, on different occasions:
  • “Most homes like this have recently sold in less than a month. Buyers are often saying they are having trouble finding a good home and know they have to act quickly when something suitable comes on the market. This home is not the best-priced of its type, that’s why it’s being rejected by the market.”
  • “A combination of bad weather and the holiday season is more likely why this property has not sold. None of your competitors had a sale, either. You are priced competitively against them. If you lower price now you may just be bidding against yourself.”
  • “The market is characterized by fear and pessimism. Not all of it is justified but it’s the reality of today’s market. These feelings may pass and you could get a sale after that. You are correctly positioned for the market as it was before recent events. But it could get worse, and if it does, you may in hindsight be glad you took an aggressive approach to getting this property sold.”

It’s often necessary to remove “value” from negotiations over “price”. A buyer who says “I don’t like the kitchen and want to remodel it” is saying the home has lesser value to him for this reason. He or she may seek to discount the price by even more than it might take to remodel it. But that person’s perception of value may be unique: many others may accept the kitchen as-is, at least for the time being, and agree to the price as fairly reflecting market. Taking “value” out of the conversation returns it to where it belongs: what should the “price” be in light of the overall market?

Determining where the impersonal market lies at any moment for any particular property is what buyers and sellers ask from Bethany. Perceptions of value in the minds of individual buyers and sellers play less of a role than hard data from that impersonal market.

Regardless where our client initially prices a property, price is always subject to review. Exposure to the market is the acid test. We are always alert to new information as it becomes available, as well as feedback from the current marketing period. We are not inclined to drop a property in MLS and forget it! Our clients hear from us regularly. We are always on call. And we believe the quality and quantity of information of value to decision-making is the best that the real estate professional community offers.

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