THE TRUTH:  what you need to know about home pricing & the market.

How Real Estate Prices are Determined

Many potential buyers today are having difficulty understanding how the economy affects home sale prices. There is a general misunderstanding that when the housing market slumps, they can get bigger discounts on real estate. Possibly, but where is that discount shown? It is already built into the listing price of the property. Real Estate Professionals do not set the market prices. We take the existing sale data and apply it to a specific property based on many qualifying and quantifying factors.

Some buyers believe that if a property is on the market for, say, $142,000, they can just offer a lot less because of “bad” market conditions. The truth is that the listing price should already reflect the effect of the market. If the market were better, the price would most likely be higher.


Market Pricing Discounts

In the chart above I am demonstrating a hypothetical pricing situation. Please note that these numbers are exaggerated for the example. This is not based on any real property, any similarity is only a coincidence.


In the Chart: A current seller made a purchase of a home and paid $127,500 for it in 2000. Today they are interested in selling that home. The chart demonstrates how the current market value (list price) is adjusted to reflect the market conditions based on comparable sales (similar properties which have recently sold in the area). If the local housing market had continued to trend up as it did up to 2004, the seller could expect to see a market value of about $170,000. Unfortunately, it did not. Instead it went fairly flat. Today's market value for that home would be about $142,000. The hypothetical discount for the home of $28,000 is already reflected in the list price.

What do they mean when the news states that particular markets are experiencing a certain percent market gain or loss? Such as, “[City Name] is down 17% in existing home sale prices.” These percentages are in relation to the same time one year previous. Georgetown’s median home price in November 2008 was $142,000 and in November 2009 it was $141,566, therefore the market was down, ↓ 0.3% (loss). On the other hand, Woodford County’s median home price in November 2008 was $139,000 and in November 2009 at $160,824. Woodford County saw a positive change of ↑ 15.7% (gain).

Generally speaking, buyers should not expect see any additional substantial discounts by citing market conditions alone. Market discounts have already been accounted for in the listing price.

As your REALTOR®, I am committed to keeping you armed with the truth so that you can make informed decisions that are in your best interest. Occasionally, you may not like what you hear, but it will be the truth.

I would rather disappoint you with honesty than waste your time with inaccuracy.

 

 

 

Market Value: The most probable price a property should bring if sold at an arm’s length transaction. A PROJECTION.

Market Price: The price for which a property actually sold. The final sales price. A FACT.
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