It almost goes without saying that the market today is dramatically different than it was 6 months ago much less a year ago, yet, I’m gonna say it … and the Dallas Business Journal is going to prove my point: in late 2022, the headline read “It’s official: Dallas-Fort Worth is now a buyer’s market for homes.”
For sellers who waited out the Spring season so they didn’t have to uproot kids before they were ready, this is not new information as they’ve been chasing values. As a Realtor, the most difficult adjustment to our listing presentations has been explaining new pricing strategy (using current active listings and DOM) vs sold comparables combined with educated assessments of the anticipated uptick.
It’s possible the easiest explanation to the shift is summed up by The Lion King’s wise mandrill, Rafiki, who advised, “Don’t matter — it’s in the past.”
Pricing a house for sale is blending the expectation of what the market will bear and what an appraiser is potentially going to come up with for value. This can be tricky, especially for seller’s seeing their neighbors who sold for thousands higher than today’s data suggests, I get it! However, overpricing ultimately costs more with holding costs including energy and mortgage expenses on house the seller no longer wants, as well as buyer perception of value based on days on market.
The approach used for at minimum the two decades I’ve been in real estate is called a Scientific Comparable Market Analysis. There are several components used, all of which are broken down to determining how to make the upcoming listing “become” the competitive listing on paper … and then beat them.
Location, Location, Location: It seems every buyer knows the value of where the house is, yet, sellers often will “jump the fence” to close by neighborhoods because either they like what they see those homes closing for or their Zestimate said they were in the same grouping (note, Zillow on-line evaluation is an algorithm tool that does not break the market down to expectational pricing). An appraiser is going to start with the narrowest window (the immediate community) and span out by same school and then border roads.
Square footage & Age: As a house gets bigger, the value of the space goes down. A general guideline is to consider comparable houses that are within 300 sq ft of the subject property. Because neighborhoods can be built over phases, that may even span decades, agent will also narrow their field of vision to homes built within a tight time frame such as within 3 years of the subject. Additionally, new construction pricing does not translate well to resales even in the same community.
Garages & Bathrooms: Not every home will have a garage, yet all with have bathrooms. When reviewing the available information, a house with one garage compared to a house with no garage that are otherwise the same, will command more value. The would be the same thought process if a house has multiple baths vs a property with only one.
Finishout: Of the criteria, this is the most subjective because it is easy to understand how a house with extensive hardwoods throughout carries more weight that one with old carpet, but not so easy to understand by how much. Also, there is such a thing as being over-improved; if you are on the only house in the subdivision to have installed the $50,000 solar panels, the appraiser is not able to validate that in the assessment, and therefore, neither can your listing agent.
Days of Market: Historically, DFW listings have sold within 3% of their price, therefore, if a house has been on the market longer than average, the buyer, and potentially appraiser, determine that the property has been over-priced.
Location, size and amenities are not the only things that drive a buyer through the front door of a home for sale, appropriate pricing does, too, and is critical to the success of the sale.
“The moment you make a mistake in pricing, you’re eating into your reputation or your profits,” said Katharine Paine, chief marketing officer for News Group.