Chapter 4: Evaluating and Pricing Property

Chapter 4: Evaluation and Pricing of Property

Agent's Role in Property Pricing

• The role of realtors is to equip sellers with necessary information to decide on a listing price.

• Realtors do not set the listing price; this decision rests with the seller.

• During listing appointments, realtors should prepare a Comparative Market Analysis (CMA).

Understanding Comparative Market Analysis (CMA)

• A CMA compares the seller's property to similar homes in the area based on specific characteristics.

• Focus on properties that sold in the last three months; however, up to six months may be acceptable if necessary.

• The CMA is not a formal appraisal but uses market data for pricing.

Types of Property Value

1. Value in Use:

   • Subjective value perceived by the owner or user of the property.

2. Value in Exchange:

   • Market value; the expected payment if the property is purchased under fair sale conditions.

3. Price vs. Cost vs. Value:

   • Market Price: Price actually paid for a property.

   • Cost: Total amount to obtain land and construct improvements.

   • Value: Represents the appraised worth which may differ from price and cost.

Evaluating Comparable Properties

• An informed buyer typically won’t pay more than for similarly comparable properties unless the property has unique advantages.

• Look for properties with similar size, location, type, and physical features.

Neighborhood Analysis

• Assess various aspects of the neighborhood:

  • Ownership Rates: Percentage of homeownership, vacant properties, and lots.

  • Neighborhood Characteristics: Land use, proximity to amenities, local nuisances, and transportation access.

  • Reputation and Services: Quality of local schools, public services, and government influences.

  • Life Cycle of Neighborhood: Understanding the development stage can impact property value.

Site Analysis

• Analyze critical property-specific details:

  • Lot Dimensions: Width, depth, and area measurements.

  • Plotage: Combination of multiple lots can enhance value.

  • Design Aspects: Property shape, topography, and title considerations.

Building Analysis

• Consider size metrics excluding garages/basements, number of bedrooms/bathrooms, and features.

• Evaluate construction quality, property age, condition, and overall curb appeal.

Preparing a CMA

• CMA software options available to simplify preparation.

• MLS (Multiple Listing Service) is key for gathering sold property data, including those outside of MLS.

• Input property information for comparisons, ideally from on-site visits.

• Focus on similar property characteristics and ensure comps are recent (3-6 months old).

Factors Affecting Comps

• Consider terms of sale and conditions:

  • Types like foreclosures and short sales may skew values lower.

  • Cash vs. financed offers can also affect sale prices.

Handling Low Appraisals

• Appraisals can complicate financing situations; lenders require them for loans.

• A lower appraisal results in lower loan amounts, necessitating higher down payments or price adjustements.

• Solutions:

  • Request a reconsideration of value from the appraiser.

  • Provide additional comparable properties to support your case.

  • Maintain a courteous approach with appraisers; avoid intimidation.

• Sharing CMA and relevant comparative information with appraisers can be beneficial.

Conclusion

• Preparing sellers for the realities of property evaluation and pricing is crucial.

• Build rapport with appraisers and approach all valuation processes with professionalism for best outcomes.