VOL. 37 | NO. 12 | Friday, March 22, 2013
Competition trumps ‘comps’ in hot market
In the not-so-distant past, a buyer found a house she liked and let her desires be known to her Realtor. That Realtor would then, in most cases, research comps for her client in order to determine what the property should command.
The term was referred to as comparative sales.
In the Nashville market, this diligence would result in the parties identifying a price per square foot for the geographic area in which the home is located based on closed sales during the previous 90 days.
The process became slightly more difficult in 2007 when the local market began to crumble and continued into 2008 when the real estate world stopped revolving. Suddenly, there were no comps in many areas.
Gradually, the recovery began and sales began to trickle in. Many were cash sales since lenders had ceased lending and had assumed the role of deciders, most often deciding against allowing anything to sell that required the use of their funds.
In late 2011, with a market in full swing, Realtors dusted off the CMA – comparative market analysis – and things were back to normal, normal being 1992-2006.
Now, with the recent frenetic pace of the sales activity, there is a new “comp” –competition.
In listing homes in this environment, past sales data is as useless as a Betamax. The Multiple Listing Service should change their DOM (Days on the Market) to HOM (Hours on the Market).
Recently, a prospective buyer asked his broker how long a property had been on the market. Four days, the broker replied, to which the buyer responded: “I wonder what’s wrong with it.”
Let’s see, four days on the market and there must be something wrong with it?
With that mindset in place, the initial price is most important since the seller deserves top dollar and the duration of the marketing window is narrow before the property is considered stale.
The traditional CMA is interesting reading, but not relevant. It’s the new comp – competition – that must be investigated.
Houses that are actively on the market should now be given the weight formerly reserved for closed sales.
On the Realtor Realtracs site, properties that are under contract with contingencies in force are highlighted in yellow. Those highlighted sales show up as active on the consumer Realtracs site, as well as Trulia, Zillow and the others. These yellow properties will become sales in the near future. Most sold in the first day or two, which suggests they sold for asking price or above. Therefore, the competition is the comp.
In many price ranges, there are obvious voids in certain areas for some price ranges.
In the Green Hills, 12South, Sylvan Park areas, for example, it is almost impossible to find anything in the $350,000 price range.
So if a person owned a 1,400-square-foot home for a price based on a CMA in one of those areas, the closed-sales data might reflect that it should be $280,000 to maybe $310,000. However, with the lack of inventory (supply) so low and the number of buyers (demand) so high, the seller should ask $350,000 to $360,000.
As odd as it seems, some are not using simple economics in their pricing. Sellers go with the new comp. Buyers, be prepared. See the example in the “Sales of the Week” below.
Sales of the Week
The sales of the week are in the 12South area, easily one of the hotbeds of activity in Nashville.
Using the CMA method, the house listed on Jan. 4 was listed as the current frenzy began and sold for $183.04 per square foot with its three bedrooms, two baths, hardwood floors throughout and a double lot.
While in need of updating, the $183 per square foot was a good price for the buyer and seller. Homes that require any updates sell for less than the updates would have costs. For example, if a new kitchen is $50,000, the home sells for $75,000 less.
This home was listed by Diane Balciar of Crye-Leike Realtors, who represented the seller well considering the condition of the property and restrictive showing instructions. Alexander Brandau of Keller Williams delivered the visionary buyer, or perhaps Brandau loaned some of his own vision, of which there is abundance, to his client.
Ivy Arnold of Parks in the Gulch Properties listed 2114 Sunset Place for $425,000 or $260.74 per square foot. She saw there were few “eyepopping” – as she describes this home – listings on the market.
While the price per square foot appears high, the quality of the finishes and the lack of supply allow a three bedroom, two bath home with 1,630 square feet to sell in a matter of days.
Then there’s 207 Hawthorne listed by Daniel Green, president of Tradition Homes and one of the area’s preferred builders. Green has this property for sale – it could go as a fixer-upper or a tear-down since the lot is big enough for two houses – for $258 per square foot.
This is an example of the land being more valuable to a builder or developer than the house and one factor that has made the $350,000 home obsolete.
They’re being devoured by developers before hitting the market.
Most Realtors who understand their market are aware of builders and developers that specialize in a particular area and contact them before offering the property to the general public.
Builder transactions are more seller-friendly since deals are often cash, there is no inspection, no repair requests and the seller can remove any or all appliances, lighting fixtures, even mantles or doorknobs.
Richard Courtney is a partner at Christianson, Patterson, Courtney, and Associates and can be reached at @movetonashville or email@example.com.