Pricing real estate

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Pennybags
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Pricing real estate

Post by Pennybags » Thu Mar 01, 2012 3:16 pm

My mother-in-law recently passed away and we are in the process of listing her home for sale. We spoke to a real estate agent who based on two recent comparable sales in the same subdivision with the same floorplan suggested a price of $129,000-134,000. We also had a professional appraisal performed on the house which we had to do anyway for tax purposes. The appraisal based on six comparables sold in the last year in the same subdivision estimated that the fair market price of the home was $167,000. The home was built in 2005 and was last sold two years ago for $188,000. We do not expect to get anything close to what my mother-in-law paid for the home, but want to get a "fair" price.

Under these circumstances, would it be reasonable to split the difference between the real estate agent's and appraiser's prices and list the home somwhere in the range of $148.000?

We want to get a decent price for the house and want to sell it quickly, but do not want to give it away.

Lumpr
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Re: Pricing real estate

Post by Lumpr » Thu Mar 01, 2012 4:08 pm

couple of thoughts

1 - bear in mind that the listing (asking) price and the sold for price, are two very different things;

2 - seek out the opinion of a several realtors; and

3 - research the current listing price of comparable properties.

hidesert
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Re: Pricing real estate

Post by hidesert » Thu Mar 01, 2012 4:47 pm

Real estate is listed online these days. You should have a site (the real estate agent should be able to show you) that lists all the homes for sale in the area along with completed sales. There should be a listing history which shows how long its been on the market and the listing price changes. From this you should be able to get a feel for your market.

As a recent buyer I will tell you I didn't waste my time looking at houses I felt were overpriced. Most places I looked at had been on the market for several months and had gone through several price reductions. When the seller finally reduced the price to the current market price the house sold within a few days.

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LitiGator
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Re: Pricing real estate

Post by LitiGator » Thu Mar 01, 2012 5:04 pm

Pennybags wrote:My mother-in-law recently passed away and we are in the process of listing her home for sale. We spoke to a real estate agent who based on two recent comparable sales in the same subdivision with the same floorplan suggested a price of $129,000-134,000. We also had a professional appraisal performed on the house which we had to do anyway for tax purposes. The appraisal based on six comparables sold in the last year in the same subdivision estimated that the fair market price of the home was $167,000. The home was built in 2005 and was last sold two years ago for $188,000. We do not expect to get anything close to what my mother-in-law paid for the home, but want to get a "fair" price.

Under these circumstances, would it be reasonable to split the difference between the real estate agent's and appraiser's prices and list the home somwhere in the range of $148.000?

We want to get a decent price for the house and want to sell it quickly, but do not want to give it away.
Few things to keep in mind.

The Appraisal industry right now is bonkers right now when it does residential real estate. "Technically" they can only use arm's length transactions when looking at comps. Foreclosures and Short Sales are not arms length transactions, which have comprised a huge chunk of all transactions nowadays. When you review the Realtor's comps, you have to ask yourself whether you think they are an accurate depiction of the current market, in your particular neighborhood, or even in your particular part of the neighborhood. Are the 2 comps the realtor used in your subdivision inferior in regards to placement (located on the main entry road for example)?

To a limited extent, you can trust what the realtor has to say. If you picked an experienced realtor (2-3+ years in your specific market), they hopefully have a good idea what your property will sell for in a reasonable time frame. The problem is, as you are seeing here, they also have an incentive to lowball your home price in order to sell it quicker and spend less time and effort earning their commission.

The good news here. Unless you signed an exclusive right of sale contract with the realtor, you are not "married" to use that realtor. If you don't trust his advice, go get a second opinion, just like you would a doctor or mechanic. I cant comment on whether your Realtor is right or your Appraiser is right, because every piece of real estate is different and unique, even in the same neighborhood. However, if you have a disagreement right now, before you have even really started selling your home, you will more than likely not be pleased with the ultimate result if you dont get a second opinion anyway.

Jim

Edit:

It is probably NOT reasonable to "split the baby" on prices. Your mother in law's home is going to be in EITHER one price range or the other. You will be doubly wrong by splitting it, either by not getting the home sold (if its worth 129), or by underpricing it regardless (if it's worth 167).

imagardener
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Re: Pricing real estate

Post by imagardener » Thu Mar 01, 2012 5:24 pm

You will get a lot more buyers looking at it as well as potential offers if you slightly underprice your listing compared to the last comparable non-repo sale. Appraisers tend to be cautious and go with a lower number. Real estate agents tend to be on the high side because they are worried a seller is talking to other agents who will tell them their property can list for a higher number. In other words a real estate agent positions themselves against other agents, not the market.

A little known fact is you do not have to accept any offer, even if it is at your full listing price. Of course you need to have an agreement with your realtor about this so that you do not owe them a commission unless you accept an offer (not just be tendered an offer). By having a lower than normal listing price you could possibly generate several offers and then your agent lets buyers know that their offer(s) needs to be raised. This requires an experienced agent who will work with other agents to get it sold for the best price.

Estate sales are very desirable because most heirs want their money and are not (usually) fixated on getting a certain price because they didn't pay for the property. And buyers know the property will be sold quickly in order to settle the estate.

Lumpr
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Re: Pricing real estate

Post by Lumpr » Thu Mar 01, 2012 5:50 pm

imagardener wrote: . . . A little known fact is you do not have to accept any offer, even if it is at your full listing price. Of course you need to have an agreement with your realtor about this so that you do not owe them a commission unless you accept an offer (not just be tendered an offer). By having a lower than normal listing price you could possibly generate several offers and then your agent lets buyers know that their offer(s) needs to be raised. . . .
Be careful if you attempt to do something like this. The typical listing agreement provides for the payment of a commission if the agent produces a ready, willing and able buyer.

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fishnskiguy
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Re: Pricing real estate

Post by fishnskiguy » Thu Mar 01, 2012 5:58 pm

For the umpteenth squared time, let me point out that the CPI is compiled by a bunch of civil servants at the Bureau of Labor and Statistics who all draw a CPI adjusted salary and get a CPI adjusted pension. Does anybody around here not think that if any of these folks were directed to jimmy the numbers they would not go screaming in a nanosecond to the Washington Post?

Chris
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Lumpr
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Re: Pricing real estate

Post by Lumpr » Thu Mar 01, 2012 6:14 pm

fishnskiguy wrote:For the umpteenth squared time, let me point out that the CPI is compiled by a bunch of civil servants at the Bureau of Labor and Statistics who all draw a CPI adjusted salary and get a CPI adjusted pension. Does anybody around here not think that if any of these folks were directed to jimmy the numbers they would not go screaming in a nanosecond to the Washington Post?

Chris
Uuuummmm, ok?

madbrain
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Re: Pricing real estate

Post by madbrain » Thu Mar 01, 2012 9:26 pm

LitiGator,
LitiGator wrote: The Appraisal industry right now is bonkers right now when it does residential real estate. "Technically" they can only use arm's length transactions when looking at comps. Foreclosures and Short Sales are not arms length transactions, which have comprised a huge chunk of all transactions nowadays.
Really ? More than half the comps on my lender's appraisal done for a refi were short sales and REOs. They were not listings however, but actual closed sales. Are appraisers not allowed to use those ? Indeed, a significant chunk of actual sales locally are REOs and short sales right now in my area. I tried to contest the appraisal as it came in low, but I didn't get anywhere.
The REOs were selling for about 30% lower per sq ft on average vs the few regular sales that closed.

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damjam
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Re: Pricing real estate

Post by damjam » Thu Mar 01, 2012 9:43 pm

I would get at least three real estate firms to price the property. Unless the property is in such a small town that there aren't that many firms.
When I priced my house a few years ago one agent priced the house much lower than the other two I contacted.
I can imagine that an agent might overprice a property to get a plum listing, or an agent might lowball a property to get a guaranteed sale. You just don't know.
An appraisal should be a good indicator of value, but how fast is the market changing where the property is?
I agree with the earlier poster who said splitting the difference in price is not the right way to go here.
Last edited by damjam on Thu Mar 01, 2012 11:05 pm, edited 1 time in total.

Balance
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Re: Pricing real estate

Post by Balance » Thu Mar 01, 2012 10:34 pm

madbrain wrote:LitiGator,
LitiGator wrote: The Appraisal industry right now is bonkers right now when it does residential real estate. "Technically" they can only use arm's length transactions when looking at comps. Foreclosures and Short Sales are not arms length transactions, which have comprised a huge chunk of all transactions nowadays.
Really ? More than half the comps on my lender's appraisal done for a refi were short sales and REOs. They were not listings however, but actual closed sales. Are appraisers not allowed to use those ? Indeed, a significant chunk of actual sales locally are REOs and short sales right now in my area. I tried to contest the appraisal as it came in low, but I didn't get anywhere.
The REOs were selling for about 30% lower per sq ft on average vs the few regular sales that closed.
I work as an appraiser and the use of distressed sales really depends on your neighborhood. If your neighborhood is being dominated by distressed sales/listings then the appraiser will most likey use them since the are the norm in your market area. But if your neighborhood is dominated by arm's length transations then those will be used. In a mixed market you will get both distressed and arm's length properties. The comp selection should mimic that of the particular market. The most recent and relevant comps should always be used. There is a form attached to the appraisal report called the 1004MC, which reports specifically about the amount of sales/listings/days on market and if distressed sales were a factor. The data collected on that form should be reflective of the comps chosen.

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Watty
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Re: Pricing real estate

Post by Watty » Thu Mar 01, 2012 11:01 pm

It was about ten years ago when I last sold a house so the market was much different but the way that I selected a real estate agent was that I talked to about six on the telephone. I then selected three of the agents to meet with and let them give me a presentation of their analysis of the house and an overview of their marketing plan which took about an hour each.

I was upfront with the agents about the selection process that I was going through to select an agent and they were all glad to at least get a chance to get the listing. In addition to looking at their real estate knowledge I was also looking at their ability to "sell" themselves since that same skill would be needed to sell the house since it had a few issues. Talking to that many people about the house also helped me feel good about the price it was listed at since I learned a lot about the local market.

It would be good for you to talk to some more agents

You need to be sure that you tell them the same thing about your situation and expectations or you they could very legitimately come up with very different suggested listing prices.

Honobob
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Re: Pricing real estate

Post by Honobob » Thu Mar 01, 2012 11:47 pm

Eight comps and you can't figure out a range for listing price? First, you need to be aware of the valuation date of the appraisal and the sales date of the comps. The CMA by the realtor is probably better if her sales are more recent. If the 6 comps on the appraisal span a time period they should reflect if prices are increasing or decreasing. Also, check the adjustments. Do they seem reasonable? This is where some appraisers make mistakes. If the adjustments are large then they really are not comps. Show your realtor all 8 conps and ask her to pick the best two. if she can't tell you why they are better than the other 6 comps get another realtor.
It's slowly dawned on me that we won the real estate lottery!

jasonl
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Re: Pricing real estate

Post by jasonl » Fri Mar 02, 2012 3:00 pm

The longer the house is for sale, the less attractive it becomes to buyers. If you don't mind having it sit for a while until you get the highest amount possible, list it at full price (while incurring property taxes, utility bills,insurance, maintenance, etc..) . Otherwise, list it lower.

Would you consider renting it until the market recovers?

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LitiGator
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Re: Pricing real estate

Post by LitiGator » Fri Mar 02, 2012 6:55 pm

Balance wrote:
madbrain wrote:LitiGator,
LitiGator wrote: The Appraisal industry right now is bonkers right now when it does residential real estate. "Technically" they can only use arm's length transactions when looking at comps. Foreclosures and Short Sales are not arms length transactions, which have comprised a huge chunk of all transactions nowadays.
Really ? More than half the comps on my lender's appraisal done for a refi were short sales and REOs. They were not listings however, but actual closed sales. Are appraisers not allowed to use those ? Indeed, a significant chunk of actual sales locally are REOs and short sales right now in my area. I tried to contest the appraisal as it came in low, but I didn't get anywhere.
The REOs were selling for about 30% lower per sq ft on average vs the few regular sales that closed.
I work as an appraiser and the use of distressed sales really depends on your neighborhood. If your neighborhood is being dominated by distressed sales/listings then the appraiser will most likey use them since the are the norm in your market area. But if your neighborhood is dominated by arm's length transations then those will be used. In a mixed market you will get both distressed and arm's length properties. The comp selection should mimic that of the particular market. The most recent and relevant comps should always be used. There is a form attached to the appraisal report called the 1004MC, which reports specifically about the amount of sales/listings/days on market and if distressed sales were a factor. The data collected on that form should be reflective of the comps chosen.
Agreed. I can tell you (in sunny south florida, home of 60-70% foreclosure comps) that appraisers are having a field day with current market valuation. However, the problem remains. No one, even in a good market, can tell you with 100% certainty what the market value of your home is. The market value of your home is what it sells for when the closing papers are signed and the check/deed are exchanged. Getting to that point is always an adventure, and thats why a good Realtor is so important.
Watty wrote: It would be good for you to talk to some more agents
This is what I think you need to do. I can't tell you how many times I've seen incompetent real estate brokers, especially in residential transactions.
Just warning you, in Florida (for example) you only need a GED to become a realtor. I've seen a lot of 18 year old Real Estate Sales Associates. Heck, I was one of them.
What that means is that you could possibly be 2-3x more educated than the person that is "your expert" on the largest financial transaction in your life.

Go get a second opinion, and make sure you don't sign any exclusive right of sale paperwork if you can avoid it.

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Pennybags
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Re: Pricing real estate

Post by Pennybags » Tue Apr 03, 2012 11:30 am

Hello,

I just wanted to provide everyone with an update. We went with a second realtor who provided us with a comparative market analysis and had much more of a "go getter" mentality. We priced the house at $150k and had two competitive offers within 3 days. We accepted an offer of $155k with $4500 towards closing and expect to close at the end of the month. While this is still much less than what my late mother-in-law paid for house two years ago, we are very pleased with this offer. I wanted to thank everyone on the board for their great advice.

Regards,
Pennybags

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