Understanding Comparables…and Other Oxymorons

You know those terms…old news, extensive briefing, military inteligence. Nothing say’s Oxymoron to me quite like “understanding comparables”. For the uninitiated, a comparable from a real estate standpoint is a recently sold, local, similar property to the subject property. When someone wants to either buy of sell a property they will study the comparables to determine the correct value for it. Sellers study the comparables to determine a correct price with which to market their home, and buyers study the comps to determine the price that they will make an offer. Determing a correct price when listing a home is perhaps the hardest part of my job, paricularly in this market.  After almost 20 years I’m just getting kind of comfortable with it. It’s the biggest single reason to work with an experienced agent.

Last week I studied the values of a 2 bedroom condo in a Foster City project and discovered that there are no less than 4 two bedroom floor plans in the development. These are some of the factors that determine value there: whether it’s a first or second floor unit (second floor units have high ceilings), whether it’s on the east or west side of the project, what view it has, whether it has new carpet, paint, hardwood floors, laminate floors, new kitchens, new bathrooms, crown moldings, new appliances, granite counters, recessed lighting, a garage, proximity to the pool and total square footage…and any combination of any of these elements. Now this is only the factors within this particular project. In order to do this right it should be compared to other similar projects nearby, and now we’re looking at factors like HOA dues, total amount of greenbelt space, history of litigation, proximity to airplane noise, whether there’s any upcoming or current assessments and what geographical part of town it’s in.

Of course, we’ve only been talking about condos/townhouses, the same basic rules apply to single family houses as well…and Foster City is the easiest community in the Mid Peninsula to comp because there are so many recurring floorplans. Up until the last year it was relatively easy to price a home because the demand was so great almost all mistakes were irrelevant…the home sold anyway. In 2008 pricing mistakes are happening all the time. Agents and sellers price property based upon what their current active competition is priced at…and often they’re wrong too. In many cases a given floorplan hasn’t sold in 2 years or more, making it hard to price it today. Since the demand isn’t there to compensate for the errors we’re seeing price reductions on these homes. If a house is priced $50,000 to $100,000 over the comparable value and takes 1 or 2 price reductions before it sells it’s easy to assume that values have fallen. In fact they’ve fallen to a level they should have been at all along.

I think that by the end of 2008 we’ll see price erosion in Foster City home values. I predict it’ll be 5 to 6% of the comparable values from January 2008. That erosion primarily is coming in the second half of this year…and it’s not a blood bath. It’s adjusting as it should.

Comments

  1. Rita Armenio says:

    I basically try to determine the market value…and go under it. The last thing in the world I want is an overpriced listing. Good post.

  2. You raise a good issue about similarity. I have seen way too many agents not even use the same type SFR… using a split as a comp for a rambler…or a two story… Also looking at the active market in the current environment may lead o a wrong estimate too… . If there are five comps and your not the BEST you will sit for awhile …perhaps a long while!

  3. I can tell you that Title Companies use formulas like plus or minus 15% in square foot, same bedroom and bathroom count, only comparables back 3 to 6 months but no longer than 12 months.

    Title Companies have the ability to stay within the same tract but typically give you a report within a radius of the particular property

  4. I try to follow the same rules that an appraisor would use and then try to get my sellers just under it.

Speak Your Mind

*