For any home or investment property buyer, it’s great consumers have the resources and capabilities to do their own research, but consumers should consider the following before using stats off, or market reports off sites like RedFin or Zillow:
1. They do no compensate for foreclosures, short sales, bank owns. These have a significant impact on the pricing. Some of these units go for 30-60% under market value, which pulls the Price Per Square Foot (PSF) down. The pricing on a foreclosure and the other alike are usually based more on the mortgage amount and are not indicators of the market value. Since these reports do not compensate for such situations, the pricing of homes in an area with foreclosures and short sales (which is most of the USA) are pulled down significantly more than they should be.
2. There is no separation between 1,2,3 bedroom units and 1,2,3 baths. This has a major impact on the pricing of a unit. For example in the Back Bay a 1 bedroom currently goes for $693 PSF, a two bedroom goes for $799 PSF and a three bedroom jumps to $1,061 PSF. So the value of each square foot rises as each Bedroom is added. The same ideology goes for Baths. Baths can range in pricing from $10,000-$20,000 each in terms of value additional value, depending on location and quality of the unit. Blending all 1,2,3 bedrooms into one report, does not tell a consumer anything but a very broad price spectrum of the area. Gauging an offer on stats that do not break this down, may not only hurt a buyer, but will leave a consumer as much in the dark, in terms of value, as the day they started researching.
3. There’s no separation for units with parking, without parking, old construction, new construction, closeness to public transportation, micro-neighborhoods within a neighborhood that may maintain a higher value than others. These have huge impacts on pricing, which should always be addressed. A building going through special assessments, a roof that has 30 years on it versus 5 years of life left, or a piping system from the 1950’s versus brand new systems, all have a huge impact on the pricing. These reports do not compensate for any of the details that really make a difference when putting in an offer.
The consumer may think that an offer of $340,000 for a penthouse level, new construction, 2 bedrooms, 2.5 baths, with deeded parking in South Boston is a fair offer, and on target for its market value, because they looked at the Zillow’s South Boston report and this median value for properties in South Boston. What the consumer doesn’t know (and rightfully so) is that the value is closer to $450k. This will leave the consumer wasting time viewing properties that are well above their budget, and also, putting in offers that would not be accepted. It’s frustrating and confusing for consumer because their research has shown that they are in the ballpark, however, the data they have used is not accurate enough to determine a unit’s value, only a broad market spectrum.
The best way to figure out pricing is to look at market comparables. With market comparables you can select homes that have sold with similar qualities: same number of bedrooms, baths, outdoor space, parking, surroundings, construction year, etc. Comparables will give you the most accurate pricing for the area, size and quality. You can also look at the market in terms of what has sold, how long its been on the market, and what listings have not sold and pulled off the market. You can get a better idea of the pricing threshold: what consumers are willing to spend for a certain product and also at what price sellers are willing to sell. Most sellers are selling their product around 90-100% of the listing price. As a consumer this is good know, so that you don’t start your offer so low and the offer is immediately rejected. Negotiation is a sensitive process and should be well calculated before proceeding.
My colleagues and I would be more than happy to assist you in creating a market comparable for a specific property of interest. If you every have any questions, do not hesitate to give us a call!