Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to [email protected].
Question. Lydia from Bakersfield, CA asks: Brian, I took some general advice to talk with several real estate agents when I decided to sell my 3 bedroom, 3 bath, 1320 square foot house. I guess I talked on the phone with about eight agents before making appoints with three that gave me a comparative market analysis. Of course, I expected to be given three different listing value suggestions but the range between the three was quite a bit more than I thought it would be. The price range was from $205,000 to $245,000 with the middle value at $229,000. What goes into determining a suggested list price?
Answer. Hi Lydia. Yours isn’t the simplest question to answer. Residential values require an analysis based on very local conditions and data. The basic information that different agents consider should come mostly from the same sources. What varies is how each agent specifically conducts the data analysis and to some extent the amount of importance, each assigns to different parts of the data. The primary source of information comes from the local MLS database. But individual agents will select different homes from within the MLS to perform their analysis. If you want to know more about the data each agent used, you can have them go over their data for each comparable house in detail.
One question you can ask is how active is your local market? Currently, the number of houses listed for sale in Bakersfield is averaging around 1,300 in 13 different zip codes. That gives you an idea about the activity level but isn’t the data that is most relied on. There are many ways the MLS data can be grouped. Generally, an analysis begins by categorizing the data into:
1. Active listings that don’t have an offer to purchase.
2. Pending sales that have an offer but the sale is not complete.
3. Sales that have been completed.
4. Listings that expired without a sale.
The most important information comes from category 3 – houses that have been sold. These represent the market fundamental of when a buyer and seller have agreed on the house value. But much more goes into the analysis. Each one of the categories needs to be further subcategorized into things like square footage, the number of baths and bedrooms, year of construction, configuration (1-story, 2-story, split-level), etc. Even at this point, more analysis is needed to find similar houses in your neighborhood and those that have sold most recently. The prices of houses selling a year ago aren’t nearly as good of information as houses selling in the past three months. And the agent needs to step back to look at information about similar houses in categories 2 and 1 – pending sales and current list prices. This indicates trends in the current market that can be compared to the past market from several months ago.
Lydia, these are all reasons why an agent knowledgeable about the local market is important. Local agents don’t have to begin from scratch. They keep track of this information on a daily basis. Still, in a large market, it’s not uncommon for different agents to conclude that different sales represent the best comparable data. In a smaller market, you would expect different agents to use the same sales data for comparables. But the comparable market analysis doesn’t end there.
There are other variables that don’t always show up in the MLS data. This includes interior and exterior improvements made to the home along with the general level of maintenance and repair that has been performed. The age of major systems such as HVAC and the roof is also considered. Active agents acquire some of this information when they are showing homes to buyers and attending open houses. Other current information that should be part of the analysis isn’t directly related to your house or the comparable houses. Both the number of similar houses for sale (inventory) and the number of active buyers indicates how much competition your home sale will face. Current mortgage rates are another consideration because these affect how much people can afford to spend. Your local market may have other variables such as employment rates, the economy, rates of new construction, and zoning regulations. Even what the agent expects the appraised value to come in at is a consideration. The appraisal is not a comparable market analysis because the appraisal follows a different set of guidelines.
You too can personally affect the suggested listing price if you insist that you want to list at the high end so you have some wiggle room on the final price or if you say you want to list lower for a quick sale. As the seller, it’s very important that you ask the agents a lot of questions. Lots of other things are going to come up that vary from what you need to disclose as the seller to or why an all cash offer at a lower price might be better than a higher price with multiple contingencies. The more you learn about the selling process, the less likely you’ll have problems as the sale progresses towards closing. You want an agent that exceeds your expectations, not one that can’t answer your questions.
I expect several agents and sellers will have comments to add.
Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to [email protected].