Pricing Your Home in a Rising Market
BY LISA LEE
Any news about the local housing market travels fast. So it should come as no surprise that record-low inventory and buyer demand is causing competition among buyers and raising prices across Oahu. In a rising market, the question on every seller’s mind is, “How do I determine the best listing price for my home?”
The process is more involved than simply looking at the latest sales in your neighborhood and tacking on an extra 5 or 10 percent.
“For sellers in changing markets in particular, determining the optimal listing price is a matter of research, calculation and analysis informed by neighborhood expertise,” says Scott Higashi, executive vice president of sales at Prudential Locations.
“The very definition of ‘market value’ is what a buyer is willing to pay for your home,” he continues. “You want to set a price that will bring in the largest number of qualified buyers in the shortest time possible.”
The first step in determining an optimal listing price is to look at comparable properties – what other similar homes have recently sold for in your neighborhood.
That process is more complicated that you might think, explains John Jacobson, an analyst in Prudential
Locations’ research department who has spent more than 20 years analyzing sales data from Oahu’s neighborhoods.
“Whether your home has a swimming pool, a view, a second story or is located on a corner lot – even what construction materials were used – can be important, depending on your neighborhood and your buyer demographic,” Jacobson explains. “This is where an experienced REALTOR can help you analyze the features and values of the comparable properties, and come up with a pricing strategy for your home.”
One detailed approach to determining value is the price-per-square-foot method, which takes comparable properties and normalizes everything that is the same about them to give a value to what is different about one or the other.
Jacobson describes it this way: “If you have a completely homogenous neighborhood, the price per square foot is the same for each unit,” he says. “Apply that to a condo building, for example. Units on a particular floor have a certain value, but if you go up 10 floors, the value increases. The difference in value is the value of that feature – in this case being located on a higher floor.”
Figuring out the price per square foot can often more accurately describe what is happening in a neighborhood’s market.
“Let’s say last year the median sale price in a neighborhood was $800,000 and this year it went up to one million dollars,” Jacobson explains. “When analyzing the price per square foot you want to look at whether the properties sold have truly equivalent values – size of home, pools, views, lanais, et cetera – and gauge the increase in price for those values accordingly. Is it a 25 percent increase across the board or did value increase more for certain types of properties or features?”
In addition to comparable past sales and competitive listings, the condition and location of the property can affect price as well. “For example, location on a side street becomes important if the main street has heavy traffic. Privacy and proximity to a public beach access affects value in otherwise comparable homes,” Jacobson notes.
After number crunching, there remains the additional art and science to positioning your home in the marketplace, says Scott Higashi. “As REALTORS, our job is to look at the past sales, current market trends and competition to see where your house fits in. Then we develop a marketing strategy to appeal to the right set of buyers and ideally, create multiple offer situations.”
“At Prudential Locations, we provide our agents with special training in this area, because while some of this is objective, it is not an exact science. A lot of it is subjective.”
The bottom line: The value of a property is not determined by the seller or the agent. According to Higashi, it’s all about how buyers see the property that matters.
“Buyers determine the value and so we help sellers to market it to them,” he says. “Only the buyer can say, ‘This is a million-dollar view, and that is what I will pay for it.'”