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Real Estate Market Analysis
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Professional appraisers sum it up in three words -- buyers 
make value. Ultimately, the value of your home is what a reasonable 
buyer is willing to pay within a reasonable time. Setting an asking price 
for your home requires that you anticipate what most buyers would be 
willing to pay. This requires a close look at comparable home sales in 
your area, as well as making an assessment of the state of the real 
estate market itself. Pricing correctly is fundamental to the successful 
outcome in the sale of your home. 

Market Analysis

Homes listed for sale and recent closed sales in your area will usually 
provide relevant comparable data for pricing your home. Closed sales 
show "market confirmed" prices, while listing prices indicate the 
current trend in pricing. Later, when your home is appraised for the buyer's 
loan, the appraiser will only consider recent closed sales. Asking 
prices will not be considered. A sales price that is solidly based on 
recent sales of similar homes will not have a problem when the price is 
later reviewed by an appraiser. If your home is superior or inferior to 
most homes in the neighborhood, or if there are few or no nearby sales, 
then anticipating the responses of potential buyers will be more 
difficult. In this case, a trial and error strategy may be necessary. This 
is a sensitive area and requires a realistic assessment of your home 
and its market. For example, one very nice home was continually 
rejected because it had the master bedroom upstairs, and it was located in an 
area where most buyers were over the age of 45, with older children. 

Real Estate Market

An important aspect of pricing is an assessment of the state of the 
real estate market. The market may favor buyers or sellers, or be in 
balance. An indicator of the quality of the market is the number of months 
of standing inventory in your market and price range. Consider your 
market area to be all neighborhoods that offer competing choices for your 
potential buyer. Here is how to do that:

Count the number of sales in your market area and price range for the 
past 12 months. 

Divide the number of sales by 12, to get the number of sales per month 
(sales rate). 

Count the number of homes on the market now.

Divide the number of homes on the market by the number of sales per 
month (sales rate).

This will show you the number of months it will take to clear the 
current inventory.

Seller's Market

Less than 6 months of standing inventory is considered a seller's 
market. In a seller's market the number of buyers is large in proportion to 
the number of homes for sale. The demand for homes is greater than the 
supply. Buyers must compete with each other for the available 
inventory. There may be multiple offers received shortly after a property goes 
on the market. Buyers will submit the highest possible price and terms
that the market will support. Prices will trend upward. In a climbing 
market, pricing slightly above recent sales is appropriate. 

Buyer's Market

More than 8 months of inventory is considered a buyer's market. In a 
buyer's market the number of buyers is small in proportion to the number 
of homes for sale. This situation can be created by high interest 
rates, employment decline and excessive building. A low number of buyers 
equals a lower price. Sellers must compete with each other for 
available buyers. Prices trend downward. In a falling market, prices should 
be set at the lower end of the range, because time works against you. 
In six months prices may be lower. This may be difficult to do, 
especially if your home was purchased at a higher price. 

Price Per Square Foot 

"Dollars per square foot" is often used as tool for comparing homes of 
varying sizes to determine a list price. When price per square foot is 
used, it is important to keep in mind that you must make a sliding 
scale adjustment from larger to smaller homes. In other words, the larger 
the house, the lower the price per square foot for comparable homes. 
This is because the core square footage of a home has a higher value 
than the peripheral area. For example, the price per sq. ft. on a 1,000 
sf home will be much higher than a 5,000 sf home, with other things 
being equal. We usually graph the neighborhood prices per sq. ft. to get a 
visual picture of the market in the neighborhood, as well to see how 
much the price per square foot declines from smaller to mid-sized to 
larger homes. 

Should you price “high,” and hope for an offer?

Houses should not be priced over the market. This is not the best way 
to position your home for several reasons:

Your home will be shown to the wrong group of buyers, from whom you 
need an aggressive negotiator - someone who will
make a low offer. 

You will inadvertently help to sell the competition. Your high price 
will convince buyers that another home is a good value. 

Your “days on the market” is evident to buyers, and is a subtle but 
important factor in their decisions. Your best leverage occurs during the 
early marketing period. 

How will you know if the price is correct? 

The best affirmation of correct pricing is second looks from buyers. 
This indicates that your home appeals to buyers in your price range. 
There may be a few "nibbles" before a buyer comes forward who is ready to 
act. It helps to get feedback from Realtors and potential buyers. 
Keep in mind that they will often be reluctant to say "negative" things. 
The summary of feedback is more important than what they say. Are you 
getting "nice" rejections or are you getting second looks?

How will you know if the price is incorrect? 

You may have steady showings, but lukewarm responses. This indicates 
that are buyers, but they have other choices with more competitive 
prices. Or, you may have very few showings. In this case, the buyer pool 
for your area, or for the style or condition of your home is small. 
This will require a strategy of more competitive pricing and a longer 
marketing time. Remember that a small buyer pool, for any reason, is a 
"buyer's market" and requires more aggressive pricing. 

How long should you market a home at a given price? 

There is no uniform time frame for marketing at set price. I think 
about 8-10 showings is a reasonable number for feedback regarding the 
price. This usually corresponds to about 2 - 6 weeks for an average home 
in a balanced market. About 30 days marketing time for a given price 
could be good a rule of thumb. However, this may be too short for your 
home if you have an unusual or very high end home for which there is a 
small market. Or, 30 days may be too long for your home if you need to 
move fast. 

What happens if your home does not sell in a reasonable time? 

If your home has been on the market for months with no offers, you have 
been given a clear message that the price is set too high. This is 
particularly true if showings have slowed down and there are few prospects 
coming to see it. What you do at this point depends on whether you 
really need to sell. If you're not really motivated to move soon, you can 
always wait for the market to catch up to the price you want. It would 
be best to take your home off the market and wait for better 
conditions. Buyers become suspicious of a house that's been for sale for a long 
time. If you need to sell, consider a schedule for dropping your price 
until it reaches a level that attracts buyers. There's no reason to 
say, "We simply can't sell our house." Houses will sell if the price is 
right. 

How can you get top dollar for your home? 

Although buyers will not pay more than market value, they will pay a 
premium for homes that are in excellent condition and well presented. 
With good condition and presentation, you can reach the high end of the 
price range achievable for your house. We will work with you to “create 
value” before your house goes on the market. When it goes on the 
market, we will make sure that your home is show beautifully to a wide 
audience.

Roselind Hejl, CRS, is a Realtor with Coldwell Banker United in Austin, Texas. Her website: http://www.weloveaustin.com offers relocation information, homes for sale, search MLS, buyer and seller guides. "Let Roselind help you make your move to Austin." Top 25 Residential Agents - Austin Business Journal

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