#424 in a series of true experiences in real estate
April 2003, Hills Newspapers
Much of our time lately has been taken up with trying to figure how much certain houses may sell for. The value of a given house depends, of course, on quite a number of factors, and figuring out what that might be is not an exact science, but rather, a guesstimate.
We think, and we search for similar sales to find the highest potential price. We are careful not to go too high because overpriced houses languish on the market. They frequently require price reductions, and sell, experience indicates, for less than if they had been priced properly at the beginning.
We’ve also found, although it is sometimes unavoidable, that if we give the owner an estimated value between, say, $550,000 and $575,000, human nature being what it is, the owner will lock into his brain the higher number. He will be terribly disappointed if that price turns out to be wrong.
Our first step after seeing a house is to talk together about the strengths and weaknesses of that house. The location will likely be the most important factor in the price it will bring. But size and style, condition, appeal to the greatest number of buyers must be figured into the equation as well.
To make matters more complicated, it is often the case that owners intend to make improvements before selling. As the work has not yet been done, we don’t know what the end result will be, yet we must take into account that the floors will be refinished, the entire interior repainted, or the garden redone.
Our conversation after we leave a house after seeing it for the first time might go something like this: “The location couldn’t be better. Great block close to good coffee, freeways, restaurants. And it’s ‘cute’ – stylish, warm, pretty windows. The third bedroom is quite small but it is a real bedroom with a closet, and the kitchen, while not glitzy, is inviting and clean. Indoor-outdoor access is good too. The yard needs some work. Maybe we should suggest that the floor in the main bathroom be replaced; it looks pretty bad. But we should get some reports first.” And so forth.
Now we go to the multiple listing computer to look at sale prices in the area, also other houses nearby that are currently for sale. Although we have probably seen most or all of these as they came up on the market, we want to remind ourselves of them, how large they were, how well they “showed,” and what the listing and sales prices were.
It is easier to price some houses than others. Houses on very large lots, those with only one bedroom, or no heat, houses that were built at the top of a long flight of stairs, or ones in very poor condition are more difficult to price. Any house that has something different about it, something we’ll have trouble comparing to other houses, whether considered an asset or a detriment, can be hard to value.
After pulling from the multiple listing houses that seem similar in size, style, condition or location (few may be truly like the one we’re working on), we sit down and study the individual sheets. We make notes: “Lot larger, bay view, did not show well.” Or, “About the same size, but interior dated and it took a long time to sell.”
Sometimes, after hours of doing this, we are still unsure about the right pricing. We search our memories for other houses, call agent friends to ask about listings we haven’t been able to find on the computer, go back further in time for older sales than we would prefer to consider.
We may have to give the owners of a house more than one price. We may say that we think the price for the house as it is right now will be X, but if, after inspections tell us more, and if certain work is done on the house, the price could be Y.
It is almost always true that houses can be sold the way they are, that no changes must be made in order to sell. But to receive the highest price in the shortest amount of time, often it makes sense to spend time and money to update, improve, show the house in its best light. The trick is to figure out which items should be attended to, which will bring the highest return for money and effort spent.
Recently we were invited by the owners of a house in a most desirable location to tell them what we thought their house would sell for if they decide to move in the next six months. It is a lovely house, full of most attractive details, including a knock-out kitchen. We found it so desirable, that surprisingly (this doesn’t happen often), we couldn’t come up with a single suggestion for improving it.
After a lot of research and thought, we wrote a letter to the owners describing sales we felt gave the most current information about their house and our best estimate of its present value.
The day after we mailed the letter, we learned that a pending sale on another house, one about the same size and style and located within two blocks of “our” house had closed escrow. The neighboring house had been, we felt, listed in approximately the “right” range. We were stunned to learn that the actual sale price was $50,000 over asking, far higher than other similar houses have sold for.
What could possibly be the explanation for this price? Could it be that this sale is an anomaly? How do we factor this price into our values?
We called the owners to give them the amazing news. We said we certainly did hope that their house is worth far more than any of us dreamed.
In this case, we have time to see what will happen in their neighborhood as other properties are offered for sale. Depending on the future, we can adjust the listing price. But even if we did not have the luxury of future time, it is the case that buyers determine value. Given appropriate exposure, houses sell for what someone is willing to pay, not what the owner is asking.
