How much is your Home Worth, Really?

By mark-slade January 11, 2012

As a Realtor with Keller Williams, a key part of my job is to provide an approximate value of a home to both prospective sellers and buyers. This is perhaps one of the most emotionally challenged “negotiations” as sellers have a belief of what their home should be worth and buyer usually have a far different idea of what they think the same home is worth. The most important consideration that rules the roost here is that “It’s all about the market!”

To best think about this, I prefer we minimize the emotional behavior by looking at a different model: So, when we deal with a manufactured product, we normally begin the process by approximating at our costs–including raw materials, labor, cost of facilities etc. But even this is only half of the equation as we know that just because an item may have cost $50.00 to manufacture doesn’t mean that the prospective buyer/consumer will value the item to be worth the RETAIL cost of the item let alone the Manufacturing Cost of the item. How many times do we venture through the malls or online sites to see “REDUCED,” “SALE,” “CLEARANCE” banners.

Let’s face it, while Apple is pretty darn good about protecting is “List” price for its iPADs, all to often, most products find themselves following simple Economics 101 relationships of Supply and Demand where “inventory” is presented to potential buyers and the pool of buyers tells us if they feel the product is worthy of the List Price, a slightly reduced price or a dramatically chopped price.

Using statistics reported from the GSMLS, of the 235 homes sold in Maplewood this past year, 28.3% of the homes sold for Final asking price or above, see Chart Below:

I love the irony for us maplewoodstock lovers that this chart looks like a “peace” sign. But the key points being made with the data plotted in this pie chart is that 30% of the closed home sales in 2011 sold for Final Asking Price or better and actually up to 108% of Final Asking/List Price.

Another 28% sold for 97%-99.5% of Final Asking Price; 17% sold between 95%-97% and almost 8% still sold for less than 90% of Final Asking Price.

Now, why do i keep referring to Final Asking Price? because homes are often remarketed multiple times throughout the process, which translates into being offered at lower (and lower again) prices when compared to the TRUE Original List Price. Even when a Listing Sheet refers to an OLP it doesn’t include the fact that the Listing Agent may have re-listed the home to reset the price and the Days on Market during the process; nor does it include reference to a prior agent’s listing of the same property, if that was, in fact, the case.

For those of you wondering if 2011 was an aberration, i can tell you it isn’t! 2010’s chart looks almost identical–Peace sign and ALL!

And, upon further examination, you would find almost the same Peach Sign with 2011’s results for Millburn and Short Hills NJ.

So, how do we answer “HOW MUCH IS YOUR HOME WORTH? It’s truly a dynamic of Economics Supply and Demand. It’s not about what the home owner spent on the home and upgrades, it’s not about what the neighbor’s house actually sold for, nor is it about what you “want” or “need,” it’s about what the current buyer pool feels it is worth when they present and negotiate offers.

Can you price your home too low? Well, referencing our Pie Charts, I would say “NOT,” because, as Realtor that studied Economics, it looks very much like the home often finds it’s right price in the market and quite often gets bid up above its Final List Price!

Mark Slade
Keller Williams Mid-Town Direct Realty, Inc.