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A few weeks ago I wrote about Price Per Square Foot as a way to price homes. Having spent 14 years in Corporate Real Estate before I turned Residential in 2003, I ALWAYS start with price per square foot – then adjust accordingly looking at features, location and lot value.

But with this CRAZY market where pricing it right makes ALL THE DIFFERENCE IN THE WORLD (see last week’s Price it Right or Expect to Hear Crickets) let’s pause. Take for example two homes that are currently on the market in the RoundHill area of Alamo next door to each other! Price per Square Foot would have these two homes priced about the same – one is a little bigger, with an extra bath, but same street, same Golf Course View – but not the same condition. One came out at just over $1.7MM, the other came out at just under $1.6MM. Now as a percentage of asking price – we’re talking less than 10% – but in reality… $1.6MM got Multiple offers and went way over. $1.7 has been on the market for 54 days and has had a price reduction.

Why, why, why? You ask… Because how you price a home, especially if it’s NOT a tract home, is so critical in this market – if you don’t get it right – it can make your life miserable. And it’s my job to keep you from having a Miserable Life when it comes to Real Estate!

So… The Comparable Sales Approach is the most common, and in this market the best way to price a property. While it may not be the most mathematically accurate approach, it is the approach most likely to get your home sold (or to make you the successful buyer if you are in a multiple offer situation (BTW – Always use a Professional if you find yourself in Multiple Offers – you will surely get blanked or over pay if you try to do multiple offers on your own or with an Out Of Area Agent!).

The Comparable Sales Approach has three basic steps:

  • Look at Recent sales that are “comparable” – same area, similar size, similar lot, condition and upgrades to your home
  • Adjust the Value to these same factors – location, size, lot size, condition, upgrades. For example (see above) a remodeled home will command a significantly higher price even if the other home is slightly larger.
  • Adjust to the current housing market – as this changes with the wind, it’s important to work with someone who has their ear to the ground locally, not their ear to the media – which is always 3-6 months behind what is really happening.

I will arrive at a home’s current value using this approach, along with a first look at Price Per Square foot. However, the very best way to determine the value of YOUR home is to call an expert – like me J – to give a Free Home Value Analysis. Give me a ring at 925-855-1955 today!

 

Disclaimer: This information is provided for reference only and is deemed reliable, but not verified or guaranteed. Listings may or may not be by Nancy Benvenuto or The RE/Max Collection. If your property is currently listed with a real estate professional, it is not our intent to solicit those listings. 

We are trained as Real Estate Professionals to always answer the question “So, how’s the Real Estate Market?” with something like “Well, that depends…are you buying, selling, leasing or investing?” – because truth be told, typically if it’s a GREAT market for sellers, it’s less so for Buyers. Same the other way around. Right now, LEASING is crazy!! If you own rental properties you are sittin’ pretty! If you are trying to rent, you are faced with a lot of competition and HUGE prices for a rental. So How’s the Market? That depends on whether you are…Never mind, been there!

But whether it’s a HOT market or a COLD market, if a property isn’t priced right, it will hurt the seller – and it’s no good for the buyer either because even if they liked the home – they won’t make an offer. Never in my 20+ years of Real Estate have I seen pricing be more sensitive!!

If a property is underpriced, it will bump up with Multiple Offers and adjust to Market Value. If a home is Overpriced – get ready to hear Crickets! In other words, it will be VERY quiet, no activity, no showings and no offers – until the price is adjusted down, and by then, the house may seem tainted. When consumers are led to believe by the media that everything is selling in a nanosecond with multiple offers, and the house up the street has been on the market for six weeks, everyone “knows” something is wrong.

Case in point – an absolutely lovely home, in an amazing neighborhood on an even more amazing street in Alamo came on the market several weeks ago. I saw it on Thursday’s broker’s tour, and loved it – just beautiful – quality construction, great location, great backyard. We were all commenting that this one would go quickly! But the price seemed high. I often struggle with what the difference between $2.3 or $2.1MM is – besides the $200,000 which is less than 10% in that price range, it matters – a lot!

There were a few, granted very subtle, little nuances about this house that had to be overcome. Couple that with a price slightly too high – and that house has been on the market for over a month! I’ve seen several others come on the market, get multiple offers and CLOSE before this one is even Pending. If that home had come out UNDER $2MM, say $1.9MM, it likely would have gotten multiple offers and bounced up to where it is now priced.

So what are these subtle things and how can you know how to price accordingly for them? That’s where we come in, and that’s where a local agent with micro-neighborhood knowledge can make all the difference! I know your “cousin from Sacramento” is a Realtor, but trust me, it’s not worth it. Hire a local, experienced, full time agent and ask that agent to give your cousin a Referral Fee if necessary. A local agent is going to know that this or that particular nuance is going to matter to buyers in that location, or price range, or condition.

Another home in an incredibly desirable neighborhood came on the market recently. It wasn’t staged, and looked old because of its furnishings – even though it wasn’t old, it was slightly overpriced and they were using an Out-of-Area agent. It sat, and sat, and sat. After several price reductions it finally went Pending (it STILL hasn’t closed escrow!). Had that home been priced right and been staged – it probably would have sold its first weekend out.

The last point that is so important in pricing correctly in the first place is to make sure you know who your audience, or buyer is. Again, sounds obvious – but different buyer demographics behave very differently! Know who is going to (likely) be your target market. If a home is a fixer, or needs a lot of work – it can’t be priced like a pristine property. It’s going to appeal to the buyer who wants (or needs) a deal, and is willing to sacrifice on condition, to get into the property. No one is going to pay a premium for a house that needs work.

Likewise, if a home is show perfect – buyers will pay a premium. It’s just amazing how emotional that decision is!! Remember Bobbie Drive I talked about a few weeks ago? Disneyland perfect – 32 offers, $200,000 over asking!!

So, whether you’re buying or selling, understanding how homes should be priced is crucial for you to get a good outcome. And the best way to understand the right price is by working with your local area agent who knows your town, your area and your neighborhood.

Have a great week!!

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