Heading into the New Year, and because of recent occurrences in the deals I currently am involved in, I wanted to spend a moment discussing the art of pricing and valuating real estate, and the keys to getting it right. It is just that, an art. Of course there is plenty of empirical data available, but it is still more of an art then a science for sure. Every property is different and unique, and thus must be evaluated on it's own merits. I am sure that there are several different ways agents and home owners go about performing this exercise, and it may even vary by property. Everyone knows that numbers can be manipulated and arranged to show what the presenter desires to show, so how do you know you are looking at accurate information.
The most common method is using dollar per sq. ft of properties sold within a given area that have sold in the past six months. Sounds simple enough, yet still can be quite misleading. It is very important to note specifics when analyzing comparable properties (comps), and here's why. If you look within a city as a whole the valuations can have huge swings north or south of a specific street due to desirability, prestige, etc. For this reason, I like to use the Thomas Guide feature on the MLS, to narrow down specifically the area of the subject property I am evaluating rather then the city it is in as a whole.
Once you come to the dollar per sq. ft number using the best comparables within a specific area, this is a good start, but not enough to set an accurate price. It must be remembered that this number is just an average. Are the houses/buildings built in similar years or is one new and designer while the other is old and dated? Does one home or building offer better amenities (ie pool, gym, private lot, etc). All of the factors obviously affect it's value. Then after analyzing the building or homes common/outside elements, you can get down to the actual subject property. Are the finishes high end (ie kitchen, baths, flooring) and above average, or is your property a bit outdated and needs refreshing (ie below average). These materials can swing values in one direction or the other as well, especially to buyer's that appreciate having the most modern or what they deem to be designer details and are willing to pay for them.
Lastly, with a house only, clearly the size of the lot matters. Is it a 4,000 sq. ft lot or a 12,000 sq. ft? Obviously even if the two houses were identical in every way, the 3x larger lot would clearly make it worth more then the other. Also, is it a private corner lot, or on a busy street, etc? Further along these lines, especially in the Hollywood Hills, the angle of the view can also influence values greatly. Two properties can be on the same street or even next to each other but due to topography, it is possible that they have completely different views, and the better view can be worth much more. It's a subjective value to the right buyer.
I know there are quite a few factors, and it is largely subjective, but this is why you would most likely want to speak to a professional to get an accurate account of your homes value. One can not rely on websites like Zillow solely for accurate information. I just saw an interview where a celebrity real estate agent spoke of selling a property over $1.5M with multiple offers, while Zillow had the property valued at $735K--this is a 50% difference between what the agent and market determined was the value of the property! Imagine if the owner just relied on Zillow or some other similar site, they could have left over $750K on the table. I think that is worth a phone call to a trained professional don't you? There is a buyer for every property and it is just a matter of price, so price it accurately from the start, and it is most likely that you will garner the highest dollar amount in the shortest amount of time.
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Good luck to everyone interested in being involved in a real estate transaction in 2011! Buy low and sell high...