By: Rob Giuffria, GMS; 1-860-796-4555
I believe the case study method is one of the most effective vehicles for learning and I would like to begin a new series for home seller and buyers. This is the first in a series of real world real estate examples that includes actual stories and the associated outcomes. Names might be changed and figures amended to protect the innocent/guilty client. However, these stories are real! Please email me at Rob@TourRealtors.com for questions regarding this series or visit me on-line at http://www.robgiuffria.com/. Thanks for visiting!
Client
A mid-level executive at a local Fortune 100 company. This client said they were familar with quantitative analysis and would like to apply econometric principles and the rigor of six sigma in the valuation model to evaluate their home.
Opportunity
Customer wanted to get a better understanding of the value of his home. He was considering a job change that would require an interstate move.
Recommendation
List price recommendation was $639,000. This would result in a sale price 98% of list (~$626,000) in <= 36 days.
Outcome
Seller did not accept recommendation and chose to list with a competeting broker. Initial list price was set at $667,000 on 6/14/07. Price was reduced to $649,900 on 8/8/07 and $639,900 on 10/8/07. Home was sold on 11/8/07 for $620,000. The seller held the asset for approximately 90 days longer than required for sale at a cost of ~$7,800. (Assest holding costs = Cost of Capital X Asset Value)
Lessons Learned
Effectively pricing a residential home based on the same sales approach is possible if assumptions are made regarding macro economic variables and those assumptions are based in fact, but do not include inherent biases from the sellers.
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