Pricing 101

Pictured condo: 2405 Kalanianaole Ave. #410 Hilo, HI 96720

Part of a residential REALTOR®’s job description relates to providing an estimate of value for prospective buyers and sellers. Buyers look to us to ensure they are not overpaying for their purchase. Through a tool called a “CMA” or Competitive / Comparative Market Analysis, we try to evaluate properties to predict value.

REALTORS® & Appraisers

REALTORS® are not appraisers. In fact, the process and results of an appraisal and a CMA can be very different.

Appraisers. Remember, an appraiser relies on historical data to establish value. Historically, appraisers considered sold closings that occurred 6 months prior. Current regulations and stricter lending criteria reduced the period to 3 months.

Realtors. This means that REALTORS® must put the weight of their valuation process on properties that should soon go to closing. This requires that the agent predict the eventual sales prices of under contract properties. Additionally, proper pricing for an upcoming listing requires heavy weight current competition/properties for sale.

Overpricing

Clearly, some properties are overpriced. Determining when a property is overpriced involves some risk along with a depth of local market knowledge. Looking at the number of days a property languished on market is one way to tell if a listed property is overpriced. The longer a property sits, the more likely it is overpriced.

Because we don’t have “cookie cutter” neighborhoods, it’s often difficult to compare “apples with apples”. In a state where land is scarce, it’s not uncommon to have plantation era homes in the same neighborhood as newer homes. To complicate the analysis, there are upgrades, renovated homes, foreclosures and homes in original condition. Ever wonder why your agent stops calling you? It’s normally because they made an initial error pricing. Your house is overpriced and they don’t want to admit it. Even worse, they sometimes hope the market will improve so the home will sell.

Surefire indicators that your property is overpriced rests on two indicators.

• If your property is experiencing consistent showings with no offers, it’s likely overpriced.
• At the same time, if you aren’t receiving consistent showing, the problem is the same.

Today’s Buyers

By all accounts, there is a pent-up demand for well-priced homes. A solid buyer pool is important. With off island buyers still heavily in the mix, local buyers are stretching their budgets to keep ahead of steadily increasing prices. Younger buyers strapped with student loan debt are eager to enter the homeownership market. For many, the largest decision they will ever make (the marriage thing) will help position them to enter the homeowner market. Others have waited hoping they’ll enter the market at the bottom. Of course, that train left the station long ago.

Multiple offers on listings, more demand than supply and the fact contractors cannot keep up with demand are indicators that pricing will continue a steady climb. It remains to be seen how much the current situation in Europe will change the market.

What’s Next?

Next week’s market update will provide a glimpse into things to come. A shifting market will make pricing ever more important. For now, home values are still outpacing inflation making homeownership a solid decision. At the same time, some sellers are sitting on the sideline waiting for the “right time to sell”. This brings us full circle. It’s up to your agent to provide a trusted, accurate opinion of value….the all-important CMA!

Want a personalized CMA for your property? Let me know!