Ask the Agent: How do I price my home when there is low comparable inventory?
This is a question that is very common because our area has low inventory: “How do you price a home when there is not a recent sale or comparable that’s similar?” This can apply if you’re a buyer and you want to know if a home is fairly priced and you’re paying a good value that a bank would support. Or this can apply if you’re a seller trying to figure out what price you should list your home for because you don’t want to overprice your home because that can cost you time and money. At the same time, if you underpriced it tremendously, you might also leave money on the table.
Low inventory challenges typically occur in properties where there is low turnover.
As a whole, the Arlington market has low turnover. But it’s even more applicable when it’s in a more unique part of the market. This could be your higher-end condos, your custom built homes, larger condos, or just any property that is just really unique or there haven’t been recent sells. There are three different kinds of approaches you could take and I’ll talk about two that I recommend and one that I don’t.
The first one is you can hire an appraiser.
This is kind of a common question that sellers have, “Should I hire an appraiser before I list my home?” I usually would advise against that just because appraisers are kind of stuck in this backward approach that they take. Whereas a real estate agent is looking more forward and has their finger on the pulse of the market a little bit more. But you could hire an appraiser to give you a value of your home before you list it. Now, your potential buyers aren’t going to necessarily care about that. If they’re getting a loan, the bank is going to require their own appraisal, so they’re not going to use yours anyway. Ultimately, the price is going to be determined by supply and demand. Although this is one method, it’s not what I would advise. I usually use a combination of the next two examples when there is low inventory.
The second way to price homes where there’s low turnover is to find out what are other alternatives that a buyer might have.
If you’re looking at a large two bedroom in a really high-end luxury building and there haven’t been any other sales in that building in the last year, just ask yourself, “Well, if I was a buyer at this price point, what other high-end places in this area would I consider?” Maybe there are two other buildings or a townhome that could potentially be alternatives. If there have been some recent sales there, that’s a great way to get an idea of the price. And you can add or subtract what characteristics are good that this one has or that this one didn’t and come up with a number that way.
The last method is to go back further in time.
Chances are if there hasn’t been a sale in the last year, there’s certainly been one in the last two, three, four years, etc., even if a building or neighborhood are notoriously low inventory. So look at your subject property, go back to the last sale or even when that one sold. If the last sale in that building or of that type of home or that actual home was three years ago, find out what that price is. Find out what the rate of growth is over time. Let’s say it’s 3% a year, apply that growth rate and see what that does to the numbers.
I would either use those last two methods, the what other alternatives do the buyer have a method or going back to the last sale and using a parallel analysis. If you have any other questions about this topic or any others that you’d like to hear about, please call or email us, we would love to help you out.