“Everyone is entitled to his own opinion, but not to his own facts.”
–Daniel Patrick Moynihan
Substitute “Comp’s” — as in “Comparable Sold Properties” — for “facts,” and you’ve got a pretty good rule of thumb for pricing residential real estate.
So, while prospective home sellers can (and do!) compare their home to any properties they want, the pros — Listing Agents (representing Sellers), Buyers’ agents, and Appraisers (working for lenders) — follow a more disciplined methodology, and therefore tend to arrive at the same price range, give or take.
The Goldilocks Approach
The pros’ approach is to price off of the three most similar, nearby properties that have sold in the last six months (preferably, less).
The goal: to place the subject home — the one you’re trying to value — on a continuum with homes just above and below in value (a technique known as “bracketing”).
Step #2: identifying the key differences between the subject home and each of the Comp’s, then assigning dollar values to the differences (“adjustments”).
“Devil in Details”
None of which is to say that there isn’t some subjectivity involved choosing Comp’s, especially when the subject property is truly unique, or there’s a dearth of recent, nearby sales.
It’s also true that agents and appraisers may assign different values to variations in condition, updates (or lack thereof), finished square feet, floor plan, lot features, and garage size.
Ditto for reading both broader market trends, and micro trends affecting specific neighborhoods.
Finally, it’s certainly possible that an unskilled or unscrupulous agent could shade their price guidance lower, to book a too-quick sale.**
Perils of Overpricing
However, in general, the process of establishing the likely fair market value for any given home is much more uniform and objective than most would-be home Sellers realize (or would like to believe).
Sellers who ignore their agents’ analysis and insist on overpricing usually discover their error.
Eventually . . . and at a significant cost. 🙁
See also, “Which of These Four Factors Are Relevant for Pricing a Home?“; “Perils of Overpricing Even (Especially) in a Rising Market”; “More Than This, Less Than That“; and “Why the Neighbor’s Home Isn’t a Comp.”
And: “You Know . . .Your Comp’s Are Right, Ours Are Wrong — It’s Deal!”; “Real Estate Bracketing ” Advanced Beginner Version“; “The Science ” and Art ” of Doing Comp’s“; and ““Bracketing,’ Explained.”
**Just because a home sold quickly doesn’t mean the listing agent cut corners.
On the contrary: if the home is properly prepped, staged, photographed, marketed and, yes . . priced, it should sell fast, especially in a Seller’s market like today’s.
The issue (again) is price.
