I receive calls on a nearly daily basis from real estate agents who are having difficulty estimating a reasonable listing price. These calls are usually from very seasoned veterans, not the rookies. I think the newbies don’t know what they don’t know and the successful agents know their limitations. I’ve been in the appraisal business for 28 years and have performed over 10,000 appraisals. To this day, I am challenged by this market so please don’t feel bad when you are stumped. I hope I can give you some pointers which will help in the comp selection which should point you in the right direction.
Time of Sale
You want to use the most current sales available. In this changing market, using old sales can be dangerous and not truly indicative of the current market conditions.
Location
Perhaps the biggest influence on value is location. You want to start with the subject’s subdivision. If there is nothing there, move on to comparable subdivisions. If that doesn’t work, use comps from the same marketing area. The same marketing area could be same school district, same side of town. Just ask yourself, if I were to take buyers on a tour of houses to consider, would these houses fit into their parameters.
Quality of Construction/Style
Use houses which are similar in quality of construction and style. Don’t compare stick built to modular or manufactured houses. Don’t use colonials if the subject is a rancher. If you are working on a cape cod and you don’t have any comps, a two story or a rancher will suffice because it has the functional utility of either. You can use split foyer/split levels as comps for ranchers if no ranchers are available or if they are in the same subdivision or recent sales or both.
Age/Condition
Use comps with similar upgrades or lack thereof. If your subject is a fixer-upper, don’t use renovated houses and try to estimate the value of the condition. Compare to houses of similar condition.
Lot Size
This always throws agents off. The value of excess land is a lot less than homeowners believe. Use comps with similar acreage.
Should I use foreclosures/short sales?
It depends. You have to analyze the market and determine if they are predominant. If there are just a couple of sales sprinkled here and there, you probably can dismiss those as outliers and just use standard arm’s length transactions. There are some areas where most of the comps are distress sales. In that case, that is the market and they should be used as comps.
Are pending sales and active listings helpful?
Absolutely! Pending sales are a great way to measure the current market conditions. Active listings are excellent for identifying your direct competition. They set the upper end of the price range for your subject. You don’t want to be priced greater that comparable listings.
Other things to consider
Exposure time- How long does it typically take to sell a house in the subject’s sub-market based on past sales data?
Marketing time- How long will it take to sell the subject considering past history as well as number of competing listings, time of year, mortgage rate trends, etc?
List Price/Sale Price Ratio-How much less than asking price do sellers generally yield?
There are other things one can do to fine tune the value estimate, but following a few simple guidelines will go a long way towards reaching a reasonable listing price.