A story about Zillow:
The other day, I was out with one of my clients viewing Boston condos for sale. We came across a property she liked and we proceeded with an offer. Here’s where the story takes a bad turn, she wanted put an offer in $100,000 below asking price on a $400,000 condo. Her logic, Zillow said that was the price it was worth. As many of you know finding a $400,000 condo in Boston is tough task, putting an offer 25% below asking is irrational.
Here are some examples of real estate irrational thinking from buyers, sellers and yes, real estate agents:
- My Zesstimate must be right, it’s a computer and it’s higher than what my Realtor said my home is worth!
- That $25,000 kitchen remodel increased my home’s value by $50,000!
- I’m not giving my home away for nothing!
- I’ll never get to buy a home, everyone knows that EVERY home is selling way over asking with multiple offers!
- That home is way over-priced. I’ll offer $20,000 less than asking (this despite there being 5 other offers).
- And yes, even we Realtors are not immune to irrational thinking… “I’d be happy to list your way over-priced home!”
When buying or selling a Boston condo, it’s wise to get a grip on reality with real numbers.
Yes, dry and boring Boston condo statistics they might well be, but they will help you make rational and educated decisions. If you chose to ignore them, good luck relying on your gut or Zillow. The same numbers work equally well for both buyers and sellers.
The list below is a guideline for finding out how much a Boston condo is worth:
1.Comparative Market Analysis
Q: What is the true market value of my Boston condo?
Simple answer: It’s what a buyer is willing to pay for it.
To find out what that magic number is, you have to list your comdo on the market. Obviously, that is not ideal if all you want is to know how much your home is worth.
However, when a seller wants to list their home for a sale, a reliable and accurate assessment (as much as humanly possible) of the home’s current value is critical. The process for determining this is known as a comparative market analysis, aka a CMA.
Ignore what Zillow or other automated online home evaluation sites are telling you. Zesstimate have not been inside your Boston condo and are completely unaware of any updates you maybe have done or repairs you may have neglected to take care of (deferred maintenance). Trust your agent and ignore the inflated (or deflated) Zesstimates.
Funny how sellers never question a CMA that comes in higher than the corresponding Zesstimate.
A buyer who wants to make an offer on a home can also benefit from their agent doing a quick market analysis. Buyers tend to think 9 out of 10 homes are over over-priced. Well, take a look at the numbers and recent sales and check what the reality really is.
2. MEDIAN SALE PRICE TREND.
This answers the very basic question of which direction is the market is currently headed. Is it going up, are prices trending downward or are we just going sideways (flat).
This will NOT predict what the market will do next. You are just looking at what the market has done over the past few months and years. You can look back 6 months after the fact and point out where the market changed direction but that is about it.
Also, it is critical when looking at price trends to make sure to use a large enough neighborhood/city area to generate reliable statistics. Too many agents extrapolate great pearls of wisdom from completely unreliable data by focusing in on too small an area with few recent sales. Many real estate market reports are meaningless. If you’re buying a condo in Beacon Hill stats from Dorchester are irrelevant.
3. WHAT PERCENTAGE OF HOMES ARE SELLING OVER THE LIST PRICE?
Also, what is the ratio of the sale price to the list price for recent sales?
In a hot real estate market, most buyers and sellers tend to think that almost every home is selling for over asking price with multiple offers.
The reality, however, may be completely different. Naturally, the best homes that are priced properly and marketed properly, will get the most buyer attention, sell quickly and for above list price. The best homes are the ones that every buyer wants. Also the Boston neighborhood can have a tremendous impact, certain neighborhoods can be hot, others not so much.
4.HOW LONG ARE HOMES TAKING TO SELL?
This is the average time it takes for a condo to fo under agreement, not the time between going on the market and closing. Also known as Days on Market (DOM)
In a hot market, most condominiums will sell quickly. Buyers need to be aware that they can’t wait until the weekend to stroll over and take a look at the home. For the best homes, you have to jump on them as soon as they hit the market.
For sellers, for those homes that took a long time to sell, or failed to sell at all, well that’s usually because there was something inherently wrong with the home, or, was just plain over-priced.
So Mr. Seller, now that you have that market data staring you in the face, do you really want to list your above market value?
5.WHAT’S THE BOSTON CONDO INVENTORY LIKE?
This helps give both buyers and sellers an indication of how many homes are currently for sale and how quickly they are being snapped up/absorbed. The lower the value, the hotter the market.
For example, when there are 4 weeks of inventory, this means that if no new homes came on the market, there would be no homes for sale after 4 weeks. A balanced buyer-seller market is considered to have 6 months of inventory.
6. DIFFERENT PRICE TIERS BEHAVE DIFFERENTLY.
First-time buyers make up the largest percentage of the home buying pool and they are focused on the “more-affordably priced” homes. Homes in this range will attract the greatest number of buyers and have the most competition. In general, many of these homes will tend to sell for a greater percentage above the list price plus they will sell more quickly.
However, for luxury and high-end homes, the market is completely different. The number of buyers who can afford to purchase these homes is more limited. Many luxury homes can take a lot longer to sell, even in a hot market. Additionally, more of them will sell for closer to asking price or less.
Buyers and sellers need to look at the real estate statistics for their particular price range, not the overall market average. A million dollar home seller should ignore $500,000 listings stats, and vice-versa!
7. HOW MANY BOSTON CONDOS ARE SELLING WITH CASH OFFERS
Sellers love all-cash offers and buyers fear them. This is regardless of the fact that cash offers are not always the best offers. Plus plenty of times a financed offer will handily beat a cash offer.
Many buyers will decide not to make an offer on a home just because they hear there’s a competing cash offer. That’s irrational thinking!
Yes, some homes do sell with cash but the majority do not. Not everyone has buckets of cash sitting around. Step back and look at the numbers. What’s the reality? Have your agent look at recent sales and check what percentage actually sold for cash.
8. HOW LIKELY IS THE HOME TO PASS AN APPRAISAL?
Unless that home was listed for less than it was worth, received a cash offer or a buyer who was relying on financing waived the appraisal contingency, then the sellers might need to step back and consider whether it really is a good offer.
Why? Because a home that sells that much above the list price is at increased risk of failing the lender’s appraisal. The seller might be told 3 weeks after accepting the buyer’s offer that the appraisal did not pass. And now “we have a situation!”.
Although, strictly speaking, this is not a real estate statistic, BOTH the home seller and buyer should rely on a comparative market analysis (CMA, see above) when deciding whether a high offer could realistically pass an appraisal.
An experienced agent should advise the seller that sometimes it is best to maybe go with the 2nd highest offer. You want to go with an offer that is the best combination of price and the greatest likelihood of going all the way to closing without problems.
For both buyers and sellers, avoid irrational exuberance.
Conclusion
When buying or selling a home, it’s only natural that your emotions will be all over the place. However, you will be making critical financial decisions which need to be based on reality and rational thinking. Embrace those boring real estate statistics and you will be a lot savvier decision maker. Ask your agent to show you the numbers.
As the current saying goes, everyone is entitled to their own opinions, but not their own facts!
BTW, She insisted that we put an offer $100,000 below asking price, we did and there were 10 other offers, guess what…our offer wasn’t accepted. Thank you Zillow.
