What’s my home worth in today’s market?
Sometimes it can be tricky to estimate what a home in Silicon Valley might sell for or its market value. I usually talk with my seller clients about trying to find the probable buyer’s value. The seller may have a range of prices that he or she anticipates and would accept. So too with the buyer, whose range will likely be lower than the seller’s. The key is finding where the buyer and seller price ranges overlap. If it’s unlikely that their ranges overlap at all, we’ll have a listing that is difficult or impossible to sell.
Let’s take a hypothetical case of a home worth about a million dollars (see image above). The seller would love for the property to sell close to $1,040,000. The buyer would like to purchase it for $960,000. The agent’scompetitive market analysis indicates that similar homes have sold or are selling at around a million dollars, give or take a percent or two. If the buyer and seller can come to a meeting of the minds, and there’s no undue pressure on either one of them, we have (hopefully) a sale and we have market value.
But as we know, sometimes homes sell for much more than they would seem to be worth, and other times much less.
What causes property values to go above or below what would seem to be the probable value? Undue pressure can certainly cause values to rise (desperate buyer who just has to get into a house, even if overpaying or desperate seller who has got to unload a property, even if selling too low).
We saw the high values happen in years where the market was terribly overheated, like in 2000, and buyers were exhausted (desperate) from losing time & time again in multiple offer situations. Sometimes the buyers got agitated and spiked the price. Here’s what I mean by that. We would see multiple offers on some homes, let’s say 10 offers, with 8 of them in a band of prices that were close to each other (true market value) and one a bit higher and another crazy high. The “crazy high bidder” got the home, the seller was ecstatic, but it was not typical of all homes and those drastically overbid homes were just creating a worse “bubble”. Those homes sold artificially high, but each time one closed, it raised the bar on what everyone thought was “market value”.
Additional causes of price fluctuations: If there is no extreme pressure, though, the rest of the odd pricing fluctuations usually come down to a couple of things:
- timing (if the home sells fast or not)
- the number of offers
- and the terms of the offer
Timing, number of offers and sales price
Homes that sell very quickly (in a week or so) may get so much attention that they also get multiple offers and they may sell with a great price and great terms for the seller. This can also happen after a dramatic price adjustment but the best chance of it happening is usually when it’s a brand new home on the market.
Right now, homes that are priced appropriately, in good shape, reasonably easy to see and have no issues aremostly selling within 3-4 weeks. If they do so, and sell with one offer, maybe a couple of offers, and a normal 20% to 25% downpayment, the property will likely sell close to list price.
Homes that stay on the market too long become “shopworn” and get passed over by most buyers (and their real estate agents). When they do sell, they will usually sell for much less than if they had snagged a buyer within the first month.
If you would like more information on the contract or purchase agreement terms and how they impact positioning and pricing of offers, please have a read.