Real estate valuation is art and science - mostly, IMO . . . SCIENCE!
Sure, you have to figure in the occasional intangible - views, proximity to schools, power lines or nearby development, and tangibles like deferred maintenance and upgrades for residential properties . . .
. . . and future development, location specifics, rarity of zoning/use allowances and such for commercial real estate . . .
But real estate professionals know that the numbers don't lie.
Numbers such as list/sale ratio, average/median price per square foot, and if you've got decent ones, market comps for the area.
Income, expenses, utilities, reserves, appreciation, depreciation, cash flow for a commercial property.
AND YET . . . so many agents won't tell their clients to quit playing!
A client I'm working with on an improved commercial property was surprised to find out that the vacant lot right next door sold 2 weeks ago for 225k. He was thinking/feeling like the 6000 SF of improved property next door's value was 'about that' and since investment value is specific to the investor, to him, it may be.
Regardless, you can't ignore that there is probably 225k in land value in the property. Numbers don't lie.
Sellers love to say they are motivated, then overprice their property thinking they will get low offers 'anyway'. They might. They may also get ignored as unrealistic.
And, some secretly suspect that 'their agent is trying to underprice them for a quick sale' which isn't how it's supposed to be unless that's the objective, but does happen (ALTHOUGH when priced to move, the result MAY be multiple offers driving price up in some markets!)
Also, savvy and/or paranoid consumers perceive, if they have not actually experienced firsthand, that there are agents who stubbornly stick to inflated pricing because they told the seller he/she could 'get that much' and don't want to eat crow, and when price goes down . . . so does their fee.
We know that's bad practice. And before you bash me, I'll go on record believing agents who do that are a small minority.
So back to numbers.
Rene Descartes wisely stated that 'Mathematics alone avoid sophisms'.
Sophisms. I love that word.
'A fallacious argument, especially one used deliberately to deceive.'
EXACTLY what sticking to THE DATA will eliminate.
Your building is worth 200k. The FFE (fixtures furniture equipment) in your building is worth either nothing, pennies on the dollar or has negative value if a buyer can't use it and can't sell it and now must pay someone to remove it.
Your building is then worth . . . 200k.
Max.
Or, you have an income producing property or a business with real estate. For years, you have expensed out your entire life to the IRS so you had virtually no income showing on your P/Ls, and now you want us to consider potential income absolute truth?
Only in some circumstances (like a rapidly developing area with appreciating rents, or a signed lease by a national tenant) may that hold up.
Remember that you have to impress a buyer, agent, appraiser and underwriter!
ESPECIALLY if it's a government loan being underwritten, such as SBA or VA Business Financing (via SBA -- yes, that is a thing. Tell your veteran clients!)
Your home is in a neighborhood of 250k homes (not this one - the Painted Ladies of Huntington Beach, CA. So cool!). You have kept up with maintenance and have appropriate appliances, paint, flooring and landscape for 'today's market'. Nice job!
So why are you asking 300k for your house?
The home down the street with an extra garage, RV parking and hookups, an outdoor kitchen and deluxe upgrades sold for that? Okay.
But the REST of the homes in the area sold in the 250k range.
Do NOT price your home at 299k and say 'motivated seller, bring all offers'.
Your agent should not be advising that, and if you are interviewing agents and you're enthralled by the one who is . . . you need to ask yourself why they are the only one!
Beware those who will 'buy a listing', and although we don't want to leave a dime of our seller's money on the table, zero dollars from no sale, or a languishing listing bleeding opportunity cost won't help.
Stick to the numbers. They don't lie.
Miss Sakamoto approved this. Good heavens, she's beautiful.
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