There's a Reason Condition is One of the Key Pricing Factors
The Main Factors of Pricing
When it comes to pricing a home it can be confusing when thinking about how much value to associate with certain features or inclusions. However, when we look at the data it can become much clearer by grouping all the value movers into a few categories.
To keep ourselves on track and keep it simple enough that clients can follow along while we're presenting our CMA we can boil it down to 5 main factors that we first look at and weigh to compare sales.
- Location: Where the house is located matters both in the city but also in the neighborhood. This includes lot location value boosts such as backing to large roads, being in a cul-de-sac, or proximity to the entrance.
- Size: The most obvious factor the more home you get for your money usually is a clear indicator of value. Both the total and finished square feet of a house tells us the value of size and usable space.
- Condition: One of the key influencers when it comes to buyer's eyes association is how good the inclusions, space or exterior appear. This goes well beyond taste as condition can often be a key indicator of deferred maintenance or future cost that a buyer will factor in their purchasing decision.
- Special Features: Main homes have special features or inclusions that the other properties in the market tend to not include or have. This can include hard surface upgrades such as flooring or extend to landscaping.
- Amenities: The neighborhood features that are included are often a key indicator in value, while they should be the same for most subdivisions when looking at an area there are times when access or grandfathered zoning can greatly affect the value of homes in a given area.
While all five factors are key when it comes to pricing (the other factors not shown here of Timing, Momentum, Opportunity, and Visibility are Positioning Factors) the one that we're going to look at today is condition. This is an interesting question because the value effect of condition is so, well, conditional.
Adjusting Up & Down For Condition
When it comes to condition the key question we have to ask is whether the condition of our property is better, worse or the same as the other homes. If all the homes in an area are in rough shape then being in rough shape won't sink the value lower, because it's the standard. If all the home in an area are in rough shape and ours is not, then it may actually give a us a boost. On the contrary, if our home is the only one not in good condition, then yes we're going to looking a a value drop.
This idea of really comparing to other properties to find that area's standard changes how many agents would normally associated condition, but it's significantly more accurate and a better way to find the right answers. The easiest way to accomplish this without having to painstakingly examine the whole market is to find a market value sales trend line, then find sold homes that match our property best. Matching how far above or below that line we price, on our square footage, will get us matching the right market value perception fast!
Let's look at a couple examples of accounting for condition in different areas.
Note: All the graphs and pricing information we'll be using were created using the Focus 1st Visual Home Values Software.
The Most Common - Mixed Conditions
A Neighborhood With Some Updated Homes and Others with Varying Condition
The graph below shows the sold properties in a neighborhood build mainly in nineties with only a few homes stretching into the early 2000s. This area has had some homes get updating, others have original finishes in good shape and others with original finishes that have reached their end of use.
We can see the home at the top [3003 Stonehaven], which is significantly above the line is totally renovated and thus in the best condition is pretty far above the line.
The house just above the line [2909 Stonehaven] has some updating, but is mostly original finishes in good condition.
The house just below the line [3736 Stratford Ct] has all original finishes but has been maintained quite well.
The house further below the line [2815 Stonehaven Dr] has all original finishes and needs to get a lot of work done to bring it back to good condition.
How would we use this information to price a home? Simple. Ask yourself, which home does my subject property match most closely?
Let's say that you're looking at a subject property that is 3400 square feet, and it's been totally updated. In that case we would know we are looking above the line by a good amount. We'd move above the line at 3400 about as much as 3003 Stonehaven and find ourselves at around $815,0000.
If our home at 3400 square feet was all original and maintained well, we'd look at just below the line and be thinking about pricing at around $770,000.
Condition Can Also Create It's Own Trends
While the example above is the most common, one of the most intriguing cases is when condition creates it's own individual trends. This can happen most often in older neighborhoods (30+ years) where you have homes that have been totally rebuilt mixed with homes that have been updated and others still in original shape. In these cases you'll find yourself accounting for condition in the creation of the graph rather than this find similar and match process. A graph showing these areas can look like this:
In a case such as this the main thing we have to ask is whether our subject property matches one of these condition descriptions better than the other. If we find ourselves in between two, then we can expect to price in between as well.
Wrapping Up
When it comes to looking at condition in particular finding a general pattern then finding a sold property you match best to is the key process to finding good answers easily that really set you up well for an accurate positioning.
- Find a Neighborhood/Area Market Value Sales Trend
- Find a Sold Property that You Can Best Match and See If It's Above or Below the Line
- Go About as Far Above or Below the Line as That Sale at Your Square Footage
This is only one part of the full Competitive CMA process. Learn more about the pricing factors and the competitive market analysis process in The New CMA: Competitive not Comparative available on Amazon or for FREE eBook Download.
What is Focus 1st?
Check out their website to learn how the Visual Home Values Software,
and the integrated AI tool can help you today!
In this blog you've seen examples of graphs and reports from the Visual Home Values Software made by Focus 1st. If you've never heard of it, it's specifically built for agents to use their MLS searches to create pricing and reviews reports that answer key questions and help agents better than any other CMA software. It was created by a former HP engineer almost 20 years ago and has been changing the industry's understanding of how to competitively price listings.
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