PRICE YOUR HOME TO SELL Part 3 of 5

PRICE YOUR HOME TO SELL Part 3 of 5
BY JOHN OCCHI, HEMET REALTOR®
Originally posted to this BLOG

This is the third installment of the report I prepare for my sellers, but confidentially share with my buyers.  I advocate that only the seller can set the price, my job is to provide them with the education to make the right choice.  In the first installments, we had the seller ask some hard questions about their home and their situation, trying to determine motivation.  Then in the second installment, we covered the basics  of market data and what should be in a CMA.

This section today is very important.  It looks into the state of the market and what conditions are affecting the sale of homes.  I hope you find this useful...

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Trends in Value in the Market

In a ‘Hot Market', like we saw in the earlier part of this decade it was not uncommon for a Hemet home to go on the market priced above the current market value. This overpricing actually helped drive the market.

If a home were realistically valued at $340,000 in a hot market, the seller may decide they have the time for the market to catch the price, so they list it at $350,000. In theory they got top market price for their home as soon as they sold it for the higher price. It may have stayed on the market a little bit longer, but in essence what it did was help establish the higher value in the neighborhood.

Again, this is an effective technique when we are seeing double digit appreciation of our real estate, but into days market it is not recommended at all. If you were to price your home at $10,000 over the market value, it will likely sit on the MLS until it either expires or you do a reality check and lower the price. However, if you let it sit on the market at a higher price and then drop the listing price on the MLS, you will have lost valuable exposure that you may never get back again. I'll discuss this concept in more detail shortly.

Real Estate Evaluation Principals

There are several principals that must be understood and considered when pricing your Hemet Home to sell in today's uncertain market.

COST

- You must know the amount you actually paid for a property. Be sure to include and significant improvements you have made since the time you purchased the Hemet home. Do Not Include equity you have pulled out of the home in a refinance o\r a 2nd mortgage. The loan amount is not relevant at all. Only include the amount you actually used to upgrade your home with a capital improvement. (This does not include maintenance -a new roof is maintenance. Any buyer expects a home to have a solid roof - so the $30,000 you spent on a new roof does not add any value.)

PRICE

- This is the amount you will accept for your property. Typically it is expressed in dollars, but there have been transactions that have included other assets as well. In this case, the value has to be converted into dollars for tax and government reporting purposes.

VALUE

- Depending on the specific circumstances, Value is the amount a buyer is willing to pay for a specific property.

MARKET VALUE

- Assuming an ‘Arms Length Transaction' between two entities (people) who have no relation with one another and where one does not have an advantage over the other in negotiations, an arms length transaction represents the market value of a piece of real estate. It is a value based on what similar properties have sold for and what a willing buyer will pay a willing seller.

REGRESSION & PROGRESSION

- These are the principals that tell you it is better to have the smallest house in a neighborhood of big houses than to have the biggest house in a neighborhood of small houses. This principal addresses the effect that surrounding homes sizes have on your property. Regression will de3crease your value when you are overbuilt for a neighborhood and Progression will increase your value when you are surrounded by larger more expensive homes.

SUBSTITUTION

This is the principal that addresses specific amenities. It is similar to the adjustments we made on a CMA, and often amenity adjustments are also made on a CMA. For example, two identical homes with the exception for a kitchen remodel. Same age, same square footage, and the same lot size. One house has a Formica floor and Formica counter tops. The second home has 18" ceramic tile in the kitchen and granite counter tops at a cost of $25,000. I'm not swaying because the second homeowner spent $25,000 in upgrades that the second home is worth $25,000 more. I'm sure we can all agree though, the second home is worth more than the first (again all other things, including maintenance are equal).

There are some improvements that will return dollar for dollar when the home is sold, but most will not. Yes they will typically increase the value of a home but not necessarily dollar for dollar on the amount spent on the improvement.

An important consideration is that the value is not determined by the amount invested in the amenity but rather by the value derived from it.

Let's look at a different example. Let's look at two of our rural home sites. Both are on an acre, on a paved road, both built the same year with the same square footage of living space and on the surface both properties appear to be worth exactly the same. Thy only difference is the well.
The first homeowner has to drill 100 feet to find drinking water at a cost of $10,000. Unfortunately for his neighbor, the second property has to go 250 feet to find an adequate water supply, at a cost of $50,000.

So, is the second property now worth $40,000 more because he had to pay that much more for his well? No, both properties are equal in value. However, had this information been available to both homeowners before they purchased and developed the land, the second vacant lot would have been worth less than the first because of the expense of the drilling to obtain a suitable drinking resource. Now that they have been developed and have like amenities, there is no adjustment for the cost of the amenity.

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When we return with the 4^th installment, I'll cover what happens when a home is overpriced and educate you why it is so important that the home is priced right, from the beginning.

Until then, Have a Blessed Day,

John Occhi, Hemet Realtor
http://www.johnocchi.com/