Last week we discussed how to use the number of days a home is listed for sale on the market as an indicator to help evaluate if a home is overpriced. This method gives you a way to determine if a home is likely overpriced by at least 5 percent, after the home has been listed for sale. But one of the problems people have when they put their home on the market is determining the best price at which to list their home for sale. Many times they have a false hope of a sales price that is significantly higher than they are likely to receive for their home.
As we stated last week, there is no single perfect way for a homeowner to determine the exact price at which their home will be sold. Most, if not all, real estate agents will base their recommended listing price on some variation of a free Comparative Market Analysis, known as a CMA. While informative, a CMA by itself is not a perfectly reliable way to determine the price at which a home should be listed for sale in order to attract a buyer.
Utilizing several different market statistics, along with a CMA, can help both buyers and sellers establish a more accurate, reasonable sales price range for a home. Knowing how to use median sales prices for this purpose can increase the reliability of this analysis.
The median sales price is the price point at which half of the homes sold for above this dollar amount and half sold for below this dollar amount. This statistic is the generally accepted way to determine if home prices in a particular community are rising or falling, and by how much. This statistic should be compared over different time frames with the general rule of thumb being that longer time frames are more reliable than shorter time frames.
For example, if we look at the average monthly median sales price for 2016, which was $215,905 for all single-family homes in Cape Coral (not including foreclosures or short sales), this tells us that half of the homes sold in the Cape were sold for more than this dollar amount and half were sold for less than this dollar amount.
Knowing this number gives us a more reliable baseline from which to run other price comparisons. We can look back at previous years, such as in 2015, when the average monthly median sales price for all single-family homes sold in Cape Coral was $200,598. This tells us that overall, in Cape Coral, median sales prices increased by 7.63 percent, year-over-year from 2015 to 2016.
Unfortunately, this does not necessarily mean that your specific home price increased by 7.63 percent last year, due to any number of other factors. Nothing is ever quite that simple. One of those factors can be based on the specific property type on which your home is built and another factor which could influence a home's price higher or lower could be the overall condition of a particular home. But the median sales price does show us the price trends in the current market.
As an example of how there can be different markets within the market based on specific property types, when we break down the median sales prices for single-family homes by our market segments, we find that with dry lot (non-canal) homes, the median sales price in 2016, was $190,403, or 11.8 percent less than the median sales price for all Cape Coral homes. However, the median sales price for dry lot homes in 2016, was 11.34 percent higher compared to 2015, when it averaged $171,015 for the year. So median sales prices in this segment of the market have been increasing faster than the overall market.
But if your home is on a sailboat access canal (no bridges to the river), its median sales price was $388,227 in 2016, or 79.8 percent higher than the median sales price of $215,905 for all Cape Coral homes. However, median sales prices for sailboat access canal homes in 2016 were only up by 1.88 percent compared to 2015, when they averaged $381,047 for the year. So median sales prices in this segment of the market increased at a slower pace than the overall market.
Once we have established a reliable baseline for prices, we can then compare a specific property type in a specific neighborhood to the overall Cape Coral market to help determine if the sales prices in that neighborhood tend to run higher or lower than the market. This can be valuable information for both buyers and sellers to know.
We had a recent situation where we were approached by sellers who was having trouble getting their home sold based on a Comparable Market Analysis they had used to set their listing price. We were able to show them factually, that in their neighborhood, homes consistently sold for below average median sales prices and even though they were likely to get an above average price for their home, it was unlikely to be anywhere near what they had been expecting.
Also, by looking at a variety of pricing metrics, we were able to show them that the information in the CMA they received was not reliable for their neighborhood. This was for a sailboat access canal home and the statistics indicated their home was likely to sell for between 20 to 30 percent below their original list price. We put together a statistically-based strategy to try to help them maximize the value they received for their home and it ultimately sold within the realistic price range we discussed with them.
When they bought the home as an investment, with plans to completely remodel and sell it, they had no idea this neighborhood was unlikely to support the price they were going to need to make a profit. They thought they were safe because it was a sailboat access canal home.
We are seeing this type of scenario, with homes overpriced by 15 to 30 percent, happening on a fairly regular basis in our current market.
By understanding how to utilize various statistics and market data, you can set realistic expectations and develop a strategy to maximize the value you receive when buying or selling your home.
(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.)