Should You Base Asking Price On Comparable Closed Sales?

Should You Base Asking Price On Comparable Sales?When it comes to listing your property, agents and brokers are traditionally taught to look at comparable sales (recently closed properties) - comparable means properties with similar features, age, geography, and size - to arrive at an asking price for the home. Appraisers and local county assessor's offices use a similar method, as well websites like Trulia and Zillow.

There is a difference between "good" comps and "bad" comps. A good comp will be a recent sale of a similar type of property in (or near) your property's neighborhood. From here, we look at what House A sold for, what House B sold for, what house C sold for, and then determine a value for your home with some adjusted version of the three.

However, this just doesn't tell the whole story.  In fact, in some cases, it tells the wrong story

Rick Jarvis of Inman News suggests we take a closer look at the traditional comparable sales approach. Take his analogy:

Would you drive a car by looking in the rear view mirror? I hope not. Most of us look out the front window (when not looking down at our cell phones, but I digress) because we are far more concerned with where we are going than where we have been. Stated simply, we are more concerned with future events than past ones.

In other words, we as Realtors® (and sellers, buyers, bankers, appraisers, homebuilders, etc.), have become accustomed to looking at comps for guidance, without fully understanding what it means that comps are really events that have occurred in the past. The past consists, of course, of another time, another market, a different season, perhaps. For example, a July home sale of a comparable property really isn't as comparable to your property being listed in September - different season, different time, different market.

Home sales of the past consist of many variables which do not lend themselves to the easy analysis we seek as Realtors. Items like inventory levels, interest rates, consumer confidence, seasonality, the "wealth effect" from the Dow Jones Industrial Average/NASDAQ, mortgage rules, job growth, population trends, all mesh together to create the buying environment of a specific property.

In other words, comparable closed properties seem like an easily measurable comparison, when in reality a lot of important information about the property's environment gets substantially overlooked.

Comparable properties don't come without their merit, of course. They can enable a point from where to begin an analysis, but it is also extremely important that we recognize their shortcomings. Agents must use the MLS to make up for these, using the database to weigh real-time adjustments, inventory, absorption, pricing, days on market, and more against any comparable properties you find.

Buyers and sellers, it is important that you work with an agent who is prepared to take this important extra step. It is the only way to genuinely anticipate and measure the market value of a home, and ensure that money isn't left on the table in negotiation.

Looking to buy or sell a property, and are unsure where to begin? Don't hesitate to send us an email or give us a call. We'd love to help.

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