Market value is a professional opinion of what a property would sell for at arm’s length – meaning to an independent buyer, without any concessions or kickbacks – based on the local real estate market, supply and demand, what other similar properties are selling for in the area and the specific features and benefits of the property.
So I had a question come up with one of my clients today. We were out looking at a property that she’s had her eye on for six months. And this is very unusual in the Seattle market for a property to last that long. It tends to indicate one of two things, maybe it’s two sides of the same coin. Number one, the property is overpriced, or number two, the property got a problem with it. So in this case, it was a little of both. It’s a small ranch house that had been used as a rental and then remodeled afterward, and the owner lives out of state. So when she first put the property on the market, she priced it too high and it didn’t sell. And then I guess she got tired of that, she put it with a different agent, a discount agent, they priced it lower, but people came back and said, “Hey, we found some things on the inspection. We want to negotiate,” and she said, “No,” she didn’t want to negotiate.
So then she went to another agent. Now she’s with her third real estate agent, and she’s priced it lower, but she just took a $15,000 price drop which is where it was today when my clients and I went out to go and look at it. So now I think it’s about where the market is. This was the price they had it at when they attracted other offers. One of the things they did strategically which was helpful was to go ahead and get a pre-inspection done. So the seller of the property paid the money to the inspector to have him come out and take a look at the property and see what was wrong with it so that when the buyer did that, there wouldn’t be any surprises.
So they found a couple of things wrong with the electrical and the seller went ahead and fixed those things so that now she has this report, she can show it to buyers, she can say, “Hey, these things came up, we got them fixed.” And the buyers can decide if they want to say, “Great, we believe you, we’re going to waive our inspection contingency,” or they want to go ahead and have their own inspection done. That’s still the right of the buyers to do that if they choose to put that in the contract. Anyway, long story to say, overpricing the property can be detrimental to getting it sold. But the primary thing that we do is to look around, and we use the MLS data, we use what’s sold, what’s pending, what’s under contract out there. We have a number of different categories that we can draw from to look at what’s going on in the real estate market in the area around the home.
And we can really fine-tune it as much as is practical, based on bedrooms, bathrooms, square footage, other features like the age or the size of the property. In this case, the property had no garage. So we can try to find other properties, and if it’s a condominium, it’s pretty easy, they’re all very uniform. If it’s every property is different and there’s a lot of diversity on the block, then that’s a harder project. But one of the key metrics that we like to look at is the price per square foot. So we’ll look at other homes and we’ll say, “This one was priced higher per square foot. This one was priced lower per square foot. This lower one was a bit of a fixer-upper. It needed some work. This higher one had everything redone and it looked really nice inside. Yours is somewhere in the middle.” And we can use that, it’s one of the methods, it’s pretty commonly used to kind of determine, for this type of house, in this type of neighborhood, in the last six months or so, what have they been selling for?
In this neighborhood, it was $500 per square foot. So on a thousand dollar house that would make it a $500,000 home. And we can kind of do that to dial it in and then compare to other properties in the neighborhood that as the agent I can go visit, I can preview them, and kind of say, “Is this house nicer than the subject property? Is this house worse than subject property?” and get an idea of making sure that the subject property, your property that you’re selling is going to be attractive to buyers who are looking in this area and this price point.
So that’s one of the ways that we do it. I hope that it gives you a sense of what’s involved in determining the price of your property. If you need help fine-tuning it, I’d be happy to take a look at the data in your marketplace and learn more about the features, the upgrades that you’ve done if any, and just get a sense of what you’re looking to accomplish with the sale of your home.