If you have a need of selling a house or any piece of real estate, the biggest leverage point you can have is to price the property correctly.  Proper valuation is the keystone for success when selling (nice photos are a close second).

Assessing the the strength of your property against those currently for sale will give insights

Hyper competition for single family houses has reduced the need for exact pricing. List prices have been more of a starting price for an auction.

In many places, competition is still high and stories about bidding wars spiraling out of control are happening but….

This may change 5.4.22

 

Market Absorption, Days on Market (DOM), & List Price to Sale Price ratio (LP/SP) are your key metrics

What Is the Absorption Rate? (Investopedia) https://www.investopedia.com/terms/a/absorption-rate.asp The term absorption rate refers to a metric used in the real estate market to evaluate the rate at which available homes are sold in a specific market during a given time period. It is calculated by dividing the number of homes sold in the allotted time period by the total number of available homes. This equation can also be reversed to identify the amount of time it would take for the supply to be sold. Absorption rates are also a key part of the accounting industry. In this context, the absorption rate refers to the way in which businesses calculate their overhead costs.

Absorption rate = homes sold/homes available

How do you do it? (yes, you can even do it on zillow even though the actual sale price may not be available on zillow)

  • pick an area to analyze > how many houses are there available? 200 for example
  • How many are being sold per month (look back for 6 months maybe) 50? 50/200 = 25% absorption rate
  • greater than 20% is associated with a sellers market
  • So, with 200 homes on the market selling at 50 per month, there is a 4 month supply of homes.
  • Sellers have a 1 in 4 chance of selling within 1 month

 

Market absorption diagram

Enough about theory, let’s talk about the market where I live, have a real estate license and access to the actual real estate reference data.

But wait! Shouldn’t I just get a ZESTIMATE??

(quick answer: no)

image of zillow zestimate on mobile device

Here is a sale that is a few months old (as of 5.4.22).

Zillow thinks it’s worth $624, 400

Here is the actual journey that the house took to find a new owner…awwww!

I can just see the text chain.. X_X

They tried a price similar to what Zillow thinks for about a week. It didn’t work then so they kept coming down.

 

How can you avoid this?

Valuation of property should be a basic skills for real estate profession. This is both an art and a science. It is also fluid. Agents must regularly go into the marketplace and view the properties that are competing for buyers. 

historical mls data that shows the journey

Get an appraisal! Yeah, that’s it!

These are awesome hardworking people, the thing is that an appraisal looks backward for value, not forward.

Real estate appraisers are the people that are tasked with measuring data for the purpose of putting a finite number (value) on real estate.

Pricing: Appraisals look back, Price Opinions look forward

Valuation Methods

Cost approach

How much would it cost to replace? Have to calculate depreciation with older homes.

The cost approach to valuation is a simple method of determining how much it would cost a homeowner to completely replace the existing house with a similar one on the same piece of land.

Income approach

The income it brings in influences the value. Great for income producing property and is the language used by investors

Sales comparison approach

The sales comparison approach to property valuation – this is used by “Big Data” and the vast majority of Realtors and appraisers to put values on residential real estate. The method stresses finding similar properties with similar features and weighting any other houses that are used in order to be able to compare them to your property.

Appraisals are Opinions – and if it’s so easy, why don’t you give it a shot?

 

Why don’t you give it a try? Here is the raw data.

 

Start analyzing it.

Take some agency in the pricing of your property! It is the absolute best opportunity for succes in selling.

For goodness sakes, don’t leave it all up to your Realtor!

Make a copy of the sheet with the actual data from the time period and area of the house referenced above “2301 Upperline”

Spreadsheet

Start manipulating the data and see what you come up with. The area is hyper local and this is why the big data operations have difficulty. They can’t drive by a house or neighborhood to verify if a comparable sale is really comparable.

Get a book from Amazon, this one is good enough to start the thought process.

Use Proper Pricing as your best leverage tool

book about pricing your home

At the very least you can create some pretty visuals.

Lastly, it looks like the data from the National Association of Realtors isn’t so bad, Realtors have access to these reports and if you would like the abridged version of the pricing process, make 30 minutes with me and I will pull one of these reports for any property that you’d like more info on. Click here for my schedule.

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