| Running With Real Estate |
Pricing your home in today’s market
We have all heard the saying, ‘Location is everything’, and the three principles of prime real estate property: ‘Location, location, location!’ We all know the desirability of a good location.
Although location has always been a huge factor in selling or buying a home, pricing your home competitively is equally important, and in today’s market pricing is an even greater concern.
To effectively price their home, today’s sellers can acquaint themselves with the differences in the types of value and the elements that create value, and in doing so better understand the differences between appraisal value / appraisal pricing, and market value / market pricing, although the basic elements that create value and the characteristics of land that affect market value, are similar for both.
While an appraisal is an ‘estimate of value’, it is not the same as a real estate agent giving you an estimate of market value and market price. Pricing is a ‘suitable price’, not an ‘estimate of value’. However, the same factors that affect the appraisal value and market value of a property also determine the appropriate price for a property.
When pricing your home for sale, recognize that your home is not a commodity with little or no fluctuation in value or price, in fact, the norm in the past was that home owners enjoyed regular upward fluctuation in value called appreciation. A commodity is anything for which there is demand, but which is supplied without qualitative differentiation across a market. Real property is the exact opposite of this. Because of this critical difference, it is important for REALTORS® to have considerable knowledge about the “principles of valuation” and make their sellers aware of them also. For instance, for a property to have value there must be demand for it. Someone has to have a desire to own or use the property and very importantly this desire must be accompanied by purchasing power. If someone desires a property but doesn’t have the financial ability to act on that desire, there is no effective demand for the property. You can quickly see how negative factors in today’s economy may have reduced the effective demand for real property in our area.
Utility, scarcity and transferability also effect value. Setting aside utility and transferability, scarcity is another consideration in today’s market. Value of property is a theoretical number which is affected by many factors. So let’s incorporate ‘location, location, location’ into our rationale. If the supply of land were unlimited, it would have less value, but even if your home is in a great and desired location, that alone will not sell your home. We can quickly understand the concept of scarcity, but the scarcity of land must be accompanied by some demand if the scarcity is to have an effect on the value of land. In today’s market, there is no scarcity of homes for sale; it is buyers that are scarce!
The simple concept of ‘scarcity’ is even better clarified when you recognize that the value of real property is affected by many other factors we call anticipation, substitution, highest and best use, competition, supply and demand, and conformity.
Of these factors, the value of real property in today’s market has been most dramatically affected by the principles of ‘substitution’’ and ‘supply and demand.
The Principle of Substitution states that the maximum value of a property is determined by what it would cost to buy a similar property that is equally desirable, since one property can be “substituted” for another. This theory means a lower priced home with a nearby ‘substitute’ will sell first. Since the two homes are “substitutable”, the lower priced one represents the same value for a lower price, and therefore, will likely sell first. With so many homes on the market, correct and competitive pricing is critical so buyers will not be drawn to one of the hundreds of other comparable homes.
We all understand the simple concept of supply and demand. This refers to the fact that the value and price of property are affected by:
Supply: the availability of property to be purchased.
Demand: the desire and ability of people to acquire property.
As the supply increases relative to demand, prices tend to decrease. We hear every day how many homes are on the market; therefore it should be easy to see the correlation in supply and demand and current home depreciation and the lack of scarcity. A buyer’s market is one in which there are not enough buyers to buy all the property offered by sellers. A seller’s market is one in which there are not enough sellers to meet the demand for property by buyers, and we are definitely in a buyer’s market.
Finally, when pricing your home for sale, also remember the principle of regression vs. progression.
Regression is a principle of appraisal that states that the value of a higher valued property is decreased if it is located among properties of lower value.
For instance a house that costs $150,000 to build will have a lower value in a neighborhood of $90,000 homes.
Progression states that the value of a lower valued property is increased if it is located among properties of a higher value.
If you are thinking that regression cannot affect the value of your home because you are in a subdivision of equally valued homes, think again, because the raising numbers of low sale prices on foreclosure and short sale properties have begun to effect the value of other homes neighboring them, even though the cost to replace the surrounding homes is the same or more.
If you are looking for a silver lining in this scenario, think of the great deals on homes in our market, and capitalize on them by purchasing a home now. Remember that if you price your home recognizing the general depreciation in our market and it sells quickly, you can make up for the perceived ‘loss” from the reduced sale price if you then purchase a home with a depreciated sale price, and be no worse off than if you sell at top dollar and then buy a home at top dollar. With today’s great rates on mortgages, you may be surprised by the monthly payment on your dream home. Remember, even a lower down payment, (considering lower equity from the sale of your home) will be off-set by the great low interest rates.
12:21 PM - Feb. 13, 2009 - comments {0} - post comment
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| QUOTATION: | It is very vulgar to talk about one’s business. Only people like stockbrokers do that, and then merely at dinner parties. |
| ATTRIBUTION: | Oscar Wilde (1854–1900), Anglo-Irish playwright, author. Algernon, in The Importance of Being Earnest, act 3. |
| Gettysburg Address |
| The speech delivered by Abraham Lincoln on Nov. 19, 1863, at the dedication of the national cemetery on the Civil War battlefield of Gettysburg, Pa. It is one of the most famous and most quoted of modern speeches. The final version of the address prepared by Lincoln, differing in detail from the spoken address, reads: | |
| Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal. | |
| Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure. We are met on a great battle-field of that war. We have come to dedicate a portion of that field, as a final resting place for those who here gave their lives that that nation might live. It is altogether fitting and proper that we should do this. | |
| But, in a larger sense, we can not dedicate—we can not consecrate—we can not hallow—this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us—that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion—that we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth. | |
| See A. Nevins, ed., Lincoln and the Gettysburg Address (1964); W. E. Barton, Lincoln at Gettysburg (1930, repr. 1971); G. Wills, Lincoln at Gettysburg: The Words That Remade America (1992). |
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