Question:
“There’s a house that’s the same as mine around the block that just sold for $500,000. So assuming I get that price and…”
Answer:
OK, I know haven’t asked me a question yet. But I’m going to pretend you asked if you should be able to get the same price that an identical home just sold for. So thanks, that’s a darn good question…
Many agents would readily agree and say “yes.”
My answer: “maybe.” Why maybe?
After all, you’re using a “comp” or comparable sale to determine what your home will sell for. Isn’t pricing a home all about the “comps?”
Yes. But don’t miss the “s” in “comps.” To be accurate you must use several comparable sales, not just one. I like to use three to five, sometimes more if they’re available. And you must also look at what’s in escrow and at your competition.
There are a few reasons you must use more than one comp:
- You may have incomplete information about the comp. Perhaps it sold low due to a foundation issue or because they sold to a relative. Or it sold high because the seller paid all the buyer’s closing costs. Or it was in better or worse condition than the photos indicate. (A good or bad photographer can make a huge difference.)
- One party’s (mis)information doesn’t set value.
The home may have sold low because the seller wasn’t aware of the current value. Or the buyer had incorrect information. I know one man who paid a premium for a home in La Jolla, only to discover later it was in Pacific Beach.
- One party’s motivation doesn’t set value.
The seller may have had financial trouble and sold quickly. Or the buyer paid a premium because a relative lives nearby (grandma the babysitter?) or they’d just lost out on five other homes they wanted and overpaid to get that home.
Before I understood this principle, I made the mistake of advising a client based on one high sale. His house sat an extended period and finally sold after multiple price decreases. If I’d looked at several comps this would have been avoided.
