It’s Not About The Comps

It’s Not About The Comps

Continuing the conversation…we’ve been watching real estate prices go through the roof with a mixture of shock and awe these past few years. The top has fallen out of the market and opened up a seemingly limitless expanse of blue sky beyond the beyond of what most homeowners could ever have imagined five or ten years ago.

For those on the sidelines, real estate has become a spectator sport – part fantasy football/part tv game show. There’s a huge home audience playing along, keeping track of the market’s crazy trajectory and testing its skill by guessing what homes will sell for when the dust finally settles.

Of course, that’s the same thing all those real buyers and agents are trying to do in the throes of the most difficult buyers’ market ever. Whether you’re an armchair quarterback or an actual buyer mired in the trenches, it’s all a guessing game and right now, everyone’s guess is as good as anyone’s guess.

Increasingly, list prices are just the “starting prices” and there’s no accurate way to determine how high they might go from there. Back in the good old days, people looked at recent sales in the neighborhood before making an offer. These days Buyers and their Agents are coming to terms with the fact that what a house WILL sell for has almost nothing to do with what HAS sold. Comps are meaningless and what really counts is how many buyers step up to compete.

This is where we step back and remind ourselves that Fair Market Value is: The price that a willing seller of a property and willing buyer agree upon. That’s not the same as what a buyer WANTS to pay. It’s what they are WILLING to pay at the end of the day. The entire multiple-offer process is designed to determine the difference between the two.

Is there any hope for buyers and their agents? Do they have to keep making stabs in the dark or is there a better way to hazard a guess? Here is my own back-of-the-napkin approach for a market as crazy as this one, I call it: Tom’s Wild-Ass, Guesstimator Tool and here’s how it works:

If a property has less than five offers add 5% to the list price. If it has 5-10 offers add 10-15%. More than 10 offers, add 20% and more than 15 offers add 30%. Remember It’s not about the comps, it is all about the competition. This will get you a lot closer to what something WILL sell for in the end than anything else that’s out there.