Monday, March 04, 2013

Thoughts about value

I spend at least part of every day looking at recently sold properties to try to determine the fair market value of other properties. It may be for someone who is thinking of selling and wants to know what they can expect to get for their property in today's market. More often it is for a buyer who is preparing to make an offer. In most cases in our market it is fairly easy to determine a fairly close idea of current market value. That doesn't mean that asking and offering prices will have any basis in reality. There is a strong contingent of unreasonable parties on both sides of the fence willingly dismissing the comps. These unreasonable parties rarely face one another across a closing table for obvious reasons.

All property sales involve at least two differing opinions about a property's value. The asking and offering prices will usually include factors other than just that person's opinion of fair market value. All sellers want to believe in the existence of an uninformed buyer who is willing to overpay. All buyers believe that there is a motivated seller somewhere who will sell his property to them below fair value. Both are sometimes right. What is far more common is that the non-distressed sale of a property will happen very close to fair market value for that property. With property sales records easily accessible online it is relatively easy for anyone with internet access to determine a fairly close idea of fair value for anything but the most unique properties.  Since comps are rarely exactly like the subject property, some adjustments usually have to be made to determine a close guesstimate of fair value. That means that the exact current value can't be determined, only a close range. A sale is going to involve some modification of opinion on both sides.

Typically a reasonable seller will look at the comps, make adjustments for differences and then list their property above that number to allow for negotiating room and/or the outside chance that an uninformed buyer will overpay. A reasonable buyer will look at the same comps, make similar adjustments and then offer below their opinion of value to allow for negotiating room and the outside chance that the seller will just accept their first low offer. If reasonable negotiations ensue a number somewhere in between is usually reached and a sale happens.

An unreasonable seller will dismiss the comps and list at a much higher number. It may just be an arbitrary amount that they've decided they want or it may be a specific number that they need. With these types of sellers, a rational argument for the fair price based on comps is a waste of time. Likewise, an unreasonable buyer will also dismiss the comps and make an arbitrary low offer that will get either an angry rejection or no response. These unreasonable parties are fairly active in the market just not in the closing rooms.

If you want to sell or buy a property, run the comps and set your asking or offering price accordingly. Hoping for that uninformed other party is, in most cases, just going to prolong the process. One other note; Don't dismiss comps that aren't in line with your expected number. If you're a buyer, you can't just use the low comps and ignore the high one. Likewise, sellers. That low sale next door is relevant whether you want to believe it or not. You know I'm talking to you, Mr. Listing Agent. You embarrassed yourself when you responded to my fair offer last week with a comp in another building while ignoring the identical comp on the same floor in the same building. Not to mention not even being aware of the most recent sale in that other building that also confirmed that our offer was right on the money. If your seller is unrealistic, just admit it. I realize that some agents' business plan involves taking over-priced listings and hoping that with time the market will beat their sellers into a more reasonable state of mind. That's fine. Just don't try to justify a crazy price with cherry picked or unrelated comps.

Every seller's and buyer's agent should be running comps for their clients when the moment of setting a price comes. If your agent isn't doing this for you it may be time for his pink slip. If you want a reasonable idea of what a particular property is worth contact me. I'll tell you what the comps suggest. What you do with that knowledge is up to you. Doesn't mean you can't dream. That redneck lottery winner who hasn't hooked up the internet connection yet may be the next one to view your property and might pay you double what I just told you it was worth. Lightning does occasionally strike.

"Reality is wrong. Dreams are for real." ___Tupac Shakur