There are many factors that determine what someone is willing to pay for your house, today. And let’s be real. The value of your home isn’t what Zillow says it is, it isn’t what your neighbor’s house sold for recently, and it isn’t necessarily what you feel it’s worth.
The value of your home is what a buyer is willing to pay for it, today.
It is a completely subjective matter controlled by the forces of Supply and Demand, a simple concept that many people don’t quite understand.
The variables that operate inside of Supply and Demand are seemingly endless, but for the purposes of pricing a home, one of the most important factors is its location. Where a home is will often be the most influential factor in evaluating a home’s potential sales price. I say potential because some homes, while they may be located in prime locations, may not be ready to exploit the full value of that location. They may be in disrepair, etc.
Remember, your home is only worth what someone will pay today. This makes marketing the property a challenge, because unless someone comes to the table today (which happens from time to time) the price you ask needs to be in line with what it will sell for in the future, and none of us have information that allows us to predict the future.
What we do have is a long history of trends and behaviors. Those past behavior patterns allow us to accurately predict gradual future changes, whether positive or negative. There’s no prediction tool for anomalies (such as the market meltdown of 2008) and sometimes they surprise us, but we are able to develop a fairly accurate assessment of a gradual change in the market over time, thereby being able to anticipate the market and price a home correctly the first time.
The goal when selling a house is to get it sold. If that’s not the goal, then it shouldn’t be on the market. In order to get the house sold, the price needs to anticipate where the market is headed and be priced according to that trend. If we do this successfully, then we’ll be able to price the home ahead of the market.
So how do we determine the direction of the market such that we ensure we are pricing the home ahead of the market?
Math.
In almost every metropolitan market, anticipating the gradual direction of the market can be calculated with simple math, and that simple math will show us more about the Market Condition and Market Supply.
Market Condition
There are three market conditions that you may hear from time to time. The first is a “Buyer’s Market.” That’s where the number of homes on the market favors the buyer and puts them in a stronger position, i.e.: plenty of homes from which to choose. The second is a “Seller’s Market,” which is the opposite, giving the seller more control over the outcome because there are less options for the buyer. The third is a “Balanced Market” where everything is balanced with very little fluctuation in price.
To determine what the condition of the market is, one must first narrow their market to the area that they’re working with, such as your sub-division. With just the right information, we can figure out what the condition of the market is in your area.
Market Supply
Market supply, in it’s simplest form, represents the time it would take for all of the homes on the market to sell, assuming no other homes were listed for sale. For instance, if you had 10 homes on the market, and 2 homes per month were selling, then there’s a 5 month supply. (10 / 2 = 5) Simple math.
In Phoenix, over time, we can show that a balanced market (that being a market where price does not fluctuate) occurs when there are approximately 6 months worth of homes on the market. Anything below means we’re in a Seller’s Market, and anything above means we’re in a Buyer’s market. The degree to which the prices will be influenced is directly related to how far away the Market Supply is from that 6 month mark.
In your neighborhood, if we find that there’s a 5 months supply, then it would be safe to assume that there is slight upward momentum in pricing. If there is a 1 month supply, then prices may be increasing at a much faster pace.
The same goes for an over-supply of homes. If there’s a 10 month supply of homes in your market area, it would be safe to assume that there will be down-ward pressure on pricing.
Once we determine the market supply in your area, we can accurately predict the direction of pricing, and price your home accordingly, which ultimately is a target price that will get your home sold.
That is, after all, the goal.