Friday, May 18, 2007 at 05:55AM
Qualifying the Comps
Whether buying or selling, it is critical to properly evaluate the recent sales in the neighborhood. Here are some tips:
1. The recent sales of homes that are similar, and close-by are the most important - appraisers are reluctant to use comps that are more than a mile away, and buyers are doing the same.
2. Check the type of financing used - and don't rely on comparable sales that used 100% financing. There won't be many more buyers who can qualify for 100% financing, and those previous sales probably wouldn't happen again, at least not at those prices. Not to mention the chance of fraud/artifically-inflated prices.
3. Compare apples and apples - if your house needs work, don't compare it to one that is spectacular. The gap between fixers and creampuffs is back, and growing daily.
4. Functional Obsolesence - if there is a room or floor plan that is funky, the price has to compensate. The guy trying to sell this house is already under the comps, yet no sale. 
Why? because when you look at this family room, where do you put the furniture? There is a walkway to the garage on the left, and glass slider to the right going out to the backyard. They need a single person to buy this who only has a chair in front of the TV.
The price will have to be very lucrative for a buyer to overlook this flaw.
5. Search for total market time. If there are multiple re-lists, then take that into account - the struggle to get that price was tougher than it appeared.
6. Time of year - The sales during the prime selling season (Feb-June) benefit from more participants in the buyer pool. Don't expect to sell in November for the same amount that people were paying in May - there aren't as many buyers looking during the fourth quarter of the year.
7. The agent matters - if the house down the street was sold by a respected top agent, and you list with Aunt Bertha from San Berdo, you can expect to sell for less.
8. If you are selling, and make it tough to see the house, the price better be very attractive to get fussy buyers to endure. Likewise if you are a pig and can't keep your house clean, the buyers will expect a lower price to compensate.
9. There are a few features that can really drive the pricing - if you have them, great, you'll get more attention, if not, many buyers will pass you by. They are: big private backyard, one-story, three-car garage, new carpet and paint, and low or no monthly fees. Location is most important, but without these extras you can expect the price to be lower.
Carefully evaluate the comps as objectively as possible!
Jim the Realtor
in Thinking of Buying?, Thinking of Selling?
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Reader Comments (12)
Jim, do you think that staging a home helps? What about the decor of a house? What decor do people like and what turns them off?
Staging helps a lot, but if sellers want to save dough and have to make a choice, I'd prefer that they get new carpet and paint first. Spend at least $30 per yard for the carpet if you want it to help.
Staging a house that needs carpet and paint is a waste of money.
I hear sellers say all the time that they "don't know what color carpet the buyers would want", as an excuse for not changing it. Any neutral quality carpet is going to be better than the crappy old stuff they have in there.
Sellers are smart to take out all personal effects too. When I'm the buyer's agent, I'm looking for clues to use against the sellers. My favorite is to look in the master closet, and when there are a husband and wife on title but one side of the closet looks like it got cleaned out in a hurry and there are still clothes in the driveway - I know what happened.
Buyers cut their teeth on the new model homes, so if sellers can match their decor as close as possible to models, they're on the right track.
Stark white paint is out - it looks boring and cheap. I'd recommend softer earth tones, they are as neutral as possible.
Regards comps. You left one off. Skools. In my 'hood side of the street can make many $10s of thousands difference.
BTW, anybody know what people are doing with the wasted space of the TV cubby-holes the builders insisted on putting in houses from 1990-last year?
I see a TV cubby hole like the one in the photo and functional floor plan or not, I cringe, because it starts to lock the furniture placement.
I'm with you on the cubby holes. I LOATHE them. Stupid idea in the first place and they are in just about every condo I've looked at in north county. You can however have them filled in.
Regarding upgrades.....
When I look at the photo I see granite countertops. Do these types of upgrades still command a premimum anymore? Granite seems to be as common as neutral color carpet now a days.
Even if you don't have kids, schools make a big difference on appreciation (from now on with a sane market) and when reselling.
Granite slab is expected now - zero value if you have it, negative value if you don't.
How much is the negative on no granite? If I have to touch the kitchen, it'll quickly turn into a $10,000 deal if not much more. The slab itself is keep, but once I pull the counter top, now I'm looking at the sink, fixture, possible cabinets...
It's a tough call on granite, where do you stop?
This is a snapshot of the buyers' mentality - many don't want to buy at any price unless the house is perfect. Many buyers, probably the majority, are thinking - "with the way that the market is, either it's perfect or I'm not buying".
If you want an 'in-between' package, do what I did in La Costa at a 1970s tract house. I hired Kitchen Tune-up to shine up the cabinet doors and install new drawers for the old presswood that were falling apart. (less than $2,000).
Then I found the best-looking porcelain tile I could find and built a new counter. Spent $2,500 on new stainless appliances and about $500 for a new sink/faucet/disposal and the kitchen looked new. The real kicker was the 18" diagonal travertine floor.
Was it worth the $10,000 - $15,000? To me it was - I sold it to the first buyer who walked up.
Sorry Jim, I meant as a buyer. Granite is pretty cheap these days, but going in, if I'm faced with a crappy countertop, once I decide to touch the countertop, the snowball of expense and desire is rolling.
Your tract home, still had a "new" kitchen, okay, newish? Hmm, serviceable with a gloss of upgrades? It's not "the works" but a new setup.
A new tile top and decent looking cabinets will get the couple to see it as okay, this will work.
A clean unworn(lightly worn) and okay cabinets will have people thinking, hmm, I'll have to do a kitchen upgrade in 2-3 years.
Dirty, worn, dated countertop, slop painted or heavily painted cabinets, doors that aren't tight and smooth, says I need $35,000 of work right now.
Well, that's the way I'd see it as a potential buyer. So going set-ups 1-3 (hmm, maybe we need another discount poll) I'd see discount like this. "The works" is granite, custom cabs, stainless high end appliances, etc.
"The works": expected in the $700+ range and over 2500 sf. No premium in lower range homes.
Newish with gloss: $0. No granite older cabinets are balanced with servicability and other upgrades.
Clean and okay: -$10K to $20K. Hey, I can get granite, upgrades elsewhere. Oh, one exception, granite tile countertop... -$75K damn cheap flipper. ;-)
Worn, dated, etc: -$50K. I'm facing a kitchen remodel, hassles and all.
Am I way off? Too lenient, too stiff?
I think you're right on the money.
I'll add that because most buyers will pass on anything they perceive to need work, those who don't mind doing a remodel will have a clean shot at the fixers. As long as the sellers are motivated.
I shake my head every day at the sellers I see being so unrealistic. I have a client who made an offer this week on a house that's been listed since December for $530,000. The heirs to the estate grew up in the house, so OK< there is some sentimental stuff going on, but after five months I would think reality would be setting in.
A house on the market for five months must be 10% or more over-priced, right? It's 1,300sf and built in 1960, with no loans on it. They did some basic improvements to sell it but it's still an old house with original plumbing, heating, electric, etc.
We offer $460,000, and they counter $510,000 as-is, no repairs, no termite, no nothing - which to us seemed like it was above $530,000 because it probably needs more than $20,000 worth of work to move in.
Five months on the market and the listing agent doesn't even have it active in the MLS, it's expired. And that's the best they can do?
Sellers think they are supremely confident, but really they are ignorant and blind to what's going on around them.
With the estate tax now not starting until something like $2 million, there isn't the rush to sell that there once was. When the IRS demands payment of taxes in 9 months from date of death, regardless of probate, etc., then you are motivated. When the entire estate, or at least the illiquid portion, is below the exemption, not so much motivation. Unless you've got squabbling heirs.