Property Pricing In a Falling Market

This past weekend, a colleague asked me to join him in a visit to a homeowner who wanted a frank and brutal assessment of his home’s value. As usual, we prepared a bunch of comps, i.e. recently sold homes plus a list of currently available homes. This last list is less helpful, obviously, as the homes have not yet sold, but is somewhat helpful as they will at least indicate an upper price level by virtue of their listing price.

We started out by touring the home and making notes on various maintenance matters that should be rectified to better show the home. Pointers were also given on room staging to make better use of the available space. All in all, a fine home, with a pool, from a respected builder with all the right upgrades in both kitchen and bathrooms.

Them come the moment of truth “How much is it worth?” said Mr. Straight Shooter. “Seven Ninety Nine” I replied. Well, we gave him some smelling salts and when he came around it seemed he thought he was somewhere in the low $900K area.

How come we were so far apart? Well, the main point of his argument was a similar home that seemed to have sold for $915,000 about a year earlier. The problems with that are many. Firstly, a sale a year ago is useless to an appraiser. They prefer to go back 3 months as a rule, or six months if absolutely necessary. Secondly, this particular home sold in a week, for cash, to an out of state buyer. When folks pay cash, some of the checks and balances of a normal transaction are lost i.e. an appraisal and a bank watching over you. Who knows, the price may have included all the furniture and the $100,000 R.V. in the driveway. We do not know. We do know that an appraiser would have many questions regarding the sale of a home that seems to have sold for an excessive amount before an underwriter would allow him to use that comp.

I then pointed out that three similar homes had sold in the mid to high $700K range quite recently. He replied that they just “dumped” them to screw up the neighborhood! Believe you me, this is not the first time I have heard this “conspiracy” theory.

I then pointed out that there were three similar homes listed, but still unsold, in the low $800K range, that have been on the market for between 210 and 270 days. Anyone can list a home at whatever price they like, but if you want to sell a home you have to price it right. It has to be priced so well that a potential buyer in the price range has to see it. In this current market there are a lot less buyers, so they can pick and choose freely.

Finally, he told me that if he priced it too low (i.e. to actually sell) the neighbors would be mad at him. Well, you know what they say. “Misery loves company.”