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I agree with Panthers, the only way to arrive at a price you feel comfortable with is to compare.
Suggesting the comps are useless is suggesting that there is absolutely no frame of reference. It's a new product and nobody has any idea what it's worth. Any price you come up with in a purchuse situation will have been compared to other purchase prices at some point or another in the decision making process.
I think you're misinterpreting what I mean - likely just as much a fault of my own for not explaining correctly.
"Comps" are the de facto standard - I've said before that they win a 1 horse race because there's nothing else to use as a benchmark. Of course, we have to use them. One point there is that people tend to think of list price as a comp - "Hey, everyone else is listed around there so it must be the right price!". That's my first issue.
Beyond that, what I question is HOW we use them in a declining market... Where do we draw the line on a "comparable" sale? I only consider actually closing prices as a comp and, be honest, you have to look at each house almost on an individual basis. Way too many things factor into a comp and my second (and primary issue) is how they get applied to an "analysis". That's where it gets fuzzy and breaks down... Nobody has even ventured to provide any details around some kind of algorithm.
Is a similarly sized home worth the same as one that just sold with power lines running through the backyard? Is the exact same builder/model on a corner lot worth ([LastSalePriceInNeighborhood]*X) ? Depending on what side of the transaction you're on, you'll apply these comps differently and use a different number for X.
In the end, people throw the term "comp" around like it's a static number determined by some magic formula and when you press a realtor on it, they fall back to telling you to trust their XYZ year experience in the business. That's all well and good, but I think just about anyone would tell you we're in unprecedented territory right now.
I have just started reading this thread and it is interesting that I was in the process of an analysis of union county for a client. They are looking in the 350-500K range and asked what has sold in the past 60 days in their price range. When I do a market analysis, I do not rely on doing a quick cma from CMLS as it does not give me accurate numbers.
It is important to use archive data to give a true picture of the recent sales (list price reductions, actual days on market, etc.). I have attached a spreadshhet that I use to display this information. The columns highlighted in yellow are the figures made available in the monthly report by CMLS. By looking at the spreadsheet you should be able to easily see the actual vs. reported. The file labled "union cma" is what is displyed on CMLS. The file labled "actual" is utilizing the archived data. Quite a difference!
I have just started reading this thread and it is interesting that I was in the process of an analysis of union county for a client. They are looking in the 350-500K range and asked what has sold in the past 60 days in their price range. When I do a market analysis, I do not rely on doing a quick cma from CMLS as it does not give me accurate numbers.
It is important to use archive data to give a true picture of the recent sales (list price reductions, actual days on market, etc.). I have attached a spreadshhet that I use to display this information. The columns highlighted in yellow are the figures made available in the monthly report by CMLS. By looking at the spreadsheet you should be able to easily see the actual vs. reported. The file labled "union cma" is what is displyed on CMLS. The file labled "actual" is utilizing the archived data. Quite a difference!
Attached is the CMA from the CMLS. If you compare this to the actual you will see what a lot of posters are trying to say about the necessity of archive data in an analysis (ie Days on Market, interim price reductions, etc.).
I think you're misinterpreting what I mean - likely just as much a fault of my own for not explaining correctly.
"Comps" are the de facto standard - I've said before that they win a 1 horse race because there's nothing else to use as a benchmark. Of course, we have to use them. One point there is that people tend to think of list price as a comp - "Hey, everyone else is listed around there so it must be the right price!". That's my first issue.
Beyond that, what I question is HOW we use them in a declining market... Where do we draw the line on a "comparable" sale? I only consider actually closing prices as a comp and, be honest, you have to look at each house almost on an individual basis. Way too many things factor into a comp and my second (and primary issue) is how they get applied to an "analysis". That's where it gets fuzzy and breaks down... Nobody has even ventured to provide any details around some kind of algorithm.
Is a similarly sized home worth the same as one that just sold with power lines running through the backyard? Is the exact same builder/model on a corner lot worth ([LastSalePriceInNeighborhood]*X) ? Depending on what side of the transaction you're on, you'll apply these comps differently and use a different number for X.
In the end, people throw the term "comp" around like it's a static number determined by some magic formula and when you press a realtor on it, they fall back to telling you to trust their XYZ year experience in the business. That's all well and good, but I think just about anyone would tell you we're in unprecedented territory right now.
It's all hocus pocus.
MikeyKid....I totally agree with you in how hard it is to use the recent comps in a declining market. A very important point that you made was trying to use the comps for different houses without actually looking at each house. EVERY house is different in quality and features, but like you said there isn't anything else to use as of today.
Attached is the CMA from the CMLS. If you compare this to the actual you will see what a lot of posters are trying to say about the necessity of archive data in an analysis (ie Days on Market, interim price reductions, etc.).
Nice way of working with the data! Of course, I would expect no less of you!
I think you're misinterpreting what I mean - likely just as much a fault of my own for not explaining correctly.
"Comps" are the de facto standard - I've said before that they win a 1 horse race because there's nothing else to use as a benchmark. Of course, we have to use them. One point there is that people tend to think of list price as a comp - "Hey, everyone else is listed around there so it must be the right price!". That's my first issue.
Beyond that, what I question is HOW we use them in a declining market... Where do we draw the line on a "comparable" sale? I only consider actually closing prices as a comp and, be honest, you have to look at each house almost on an individual basis. Way too many things factor into a comp and my second (and primary issue) is how they get applied to an "analysis". That's where it gets fuzzy and breaks down... Nobody has even ventured to provide any details around some kind of algorithm.
Is a similarly sized home worth the same as one that just sold with power lines running through the backyard? Is the exact same builder/model on a corner lot worth ([LastSalePriceInNeighborhood]*X) ? Depending on what side of the transaction you're on, you'll apply these comps differently and use a different number for X.
In the end, people throw the term "comp" around like it's a static number determined by some magic formula and when you press a realtor on it, they fall back to telling you to trust their XYZ year experience in the business. That's all well and good, but I think just about anyone would tell you we're in unprecedented territory right now.
It's all hocus pocus.
If you're saying it's not an exact science, yes I agree. Nothing can pinpoint that exactly. Not even back in '05'
The point is, for every purchase you make, you'll have some idea what you'd like to pay, and that idea will come from some calculation based on what other people have paid for similar goods and/or services.
In real estate, you can't ever nail it down to an exact calculation because it's a negotiation. And you're dealing with people. Every person is different.
Attached is the CMA from the CMLS. If you compare this to the actual you will see what a lot of posters are trying to say about the necessity of archive data in an analysis (ie Days on Market, interim price reductions, etc.).
I like data!! Interim price reductions are something our realtor didn't talk about, but it would have been nice information. We also did not know if something had been relisted, showing a shorter DOM than reality.
Interestingly, yesterday we received one of those mass mailing local analysys agents send out. Our house was listed as selling at $270k. It did not include any of the closing costs, appliances and other considerations which totaled $8k to our favor. The net needed at closing was important as we were paying for the entire move ourselves.
The same floor plan down the street was listed as selling for $265k. Their finishes and lot are not as nice as ours. I do not know what concessions they had at closing or if they were a relo so it didn't matter as much, etc. How could an outsider use those two comps to determine a price for the same plan in the same neighborhood?
It would be amazingly wonderful if you could work you spreadsheet skills to show net needed at closing and net loan amount. Is that information even available?
Last edited by msm_teacher; 02-27-2010 at 10:06 AM..
Reason: caught at least some typos
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