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Using a simple market statistic to evaluate the price of a home

March 10, 2017
By BOB and GERI QUINN - Homing In , Cape Coral Daily Breeze

Today, most of us are bombarded with information about everything, real estate included. Being able to sort through this information so you can narrow down your focus to the most reliable and useful information will help you make more informed decisions when you are buying or selling your home.

One of the more important aspects in buying or selling a home is trying to determine the most likely price at which it will be sold. Determining the fair market value, or what we refer to as the reasonable price range for a home, is not as easy as it may sound, in large part because there is no single perfect way to make this calculation.

Unlike the stock market, where we can pull up real time pricing information and know at any given moment the exact price when we want to buy or sell a particular stock, pricing in the housing market is much more opaque. The person looking to sell his/her home establishes his/her initial asking price based on a variety of factors and information, and potential buyers need to be able to come in and try to accurately evaluate that price.

Unfortunately, this pricing process for homes tends to leave a fairly big margin for error and we are consistently seeing homes in our current market overpriced by 10 to 25 percent, or more. We are able to determine this by analyzing market data and compiling very specific statistics about the Cape Coral real estate market. So today, we are going to discuss one of these statistics and provide some insights, which can be beneficial to both buyers and sellers.

Days on the market:

One of the best statistics for determining if a home is reasonably priced, is to look at the number of days it has been listed for sale, as well as the number of days since its last price change. It is important to note that there are some variables to using this statistic, in that lower priced homes will tend to sell in a fewer number of days, while higher priced homes usually take longer to sell, so it can involve some additional home-by-home analysis.

Here is the general rule of thumb with this statistic. When a home is "reasonably priced" in our current market, it will usually go under contract with a buyer within 30 days of being listed for sale and for a purchase price that is usually within 5 percent of the asking price. This is especially true for the biggest segment of the Cape Coral single-family home market, which is for homes priced under $300,000.

This statistic also tells us that if we are looking to buy a home priced for under $300,000 and if that home has been on the market for more than 30 days, then it is likely overpriced by at least 5 percent. Otherwise, the home would have already gone under contract with another buyer.

To illustrate how this works, let's say a home was just listed for sale today at an initial asking price of $250,000. If this home is reasonably priced, it should go under contract with a buyer within the next 30 days and the sale will likely close at a sales price within 5 percent of the asking price. So in this case, it would be sold for somewhere between $237,500 to full price. It would also not be uncommon in our current market, for this home, if it was reasonably priced, to go under contract with a buyer within several days or weeks of being listed for sale.

On the flip side, if this home has not gone under contract with a buyer within the first 30 days of being listed for sale, then it is a market indication that the home is likely overpriced by at least 5 percent, or more. The longer this home sits on the market beyond 30 days at its initial price, the less likely it becomes that it will be sold.

However, if the seller does a meaningful price reduction, it resets this 30-day clock. In this case, by a meaningful price reduction, we are talking about reducing the price by up to $12,500 or by 5 percent, not by several hundred dollars. After making this price reduction, if it brought the home into a reasonable price range, it should now go under contract with a buyer within 30 days.

So let's assume the sellers lowered their price by 5 percent, from $250,000 to $237,500. If they have reached the reasonable price point for this home, they should now receive an offer that can likely be negotiated to somewhere within 5 percent of their reduced price, so the sale would likely close between about $225,625 and $237,500. This should occur within 30 days of the price reduction, if not within days or weeks, or it is another market indication that the home is still most likely overpriced by at least 5 percent. The longer this home remains on the market beyond 30 days without another price reduction, the less likely it becomes that it will be sold.

From the sellers' perspective, another part of the formula that can help them determine if they have their home priced properly for the current market, is to monitor the showing activity with potential buyers for their home. In the first two to four weeks the home is listed for sale, if you are barely getting a trickle of showings, it is a market indication that you are probably overpriced by more than 5 percent. On the other hand, if you are getting a lot of showings without receiving any offers, then you are probably overpriced, but you might not be off by that much.

In this second scenario, you are likely to be receiving a lot of feedback from potential buyers about why they are not making an offer on your home. This information may enable you to offer making a repair or replacement, as an incentive to attract a buyer, instead of making a larger price reduction.

When you have your home listed for sale, your real estate agent should be helping you monitor a number of different indicators and statistics. This will help you to accurately evaluate your situation and make more informed adjustments, if necessary.

(The data for this article was obtained from the Florida Realtors Multiple Listing Service Matrix for Lee County, as of Feb. 18, 2017, and it was compiled by Bob and Geri Quinn. It includes information specifically for Cape Coral single-family homes, and does not include condominiums, foreclosures or short sales. The data and statistics are believed to be reliable, however, they could be updated and revised periodically, and are subject to change without notice. The Quinns are a husband and wife real estate team with Century 21 Birchwood Realty Inc., in Cape Coral. They have lived in Cape Coral for over 37- years. Geri has been a full-time Realtor since 2005, and Bob, who also holds a Certified Financial Planner designation, joined with Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.)



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