Pricing a home, whether for sale or for purchase, is both a science and an art.
We’d like to have a straightforward science that could determine what a fair market price would be for a given home. A statistical analysis that could reliably ascertain an appropriate dollar figure would not only make the process of transferring ownership from a seller to a buyer easier, it would also help us all avoid many worry lines caused by second guessing whether or not we “got a good deal” or “made a mistake”.
There is, however, a major challenge to accomplishing that feat. A fundamental tenet of the real estate industry in California holds that each real estate property is unique. Each home has a set of potentially positive and negative qualities that can be found in no other home. Experience in selling real estate has proven this tenet to be resoundingly true. The dollar values of other homes that are listed or have been sold can never exactly identify the value of any other property.
Complicating the matter even further, the “potentially positive and negative qualities” noted above are also subjective qualities, and every buyer and seller, like every home, is unique. Not only the homes themselves, but also buyers’ and sellers’ attraction to the homes are unique qualities.
Real estate agents do their best to provide statistics to their clients that would indicate as clearly as possible what a current value of a home might be. It’s a kind of scientific approach. This is done by examining similar homes that are either on the market currently, have gone into escrow recently or have closed a sale recently. At best, it I can be some indication of what other people have considered to be a fair price for a home of a certain description. Any other buyer, however, might have a different opinion on the positive or negative qualities of the property, and therefore would possibly feel a different price is fair and appropriate.
Skillful agents will also include for their clients insights that go beyond the statistics. They will provide information on intangible factors, such a proximity to desirable locations like schools, entertainment venues, transportation, etc. A timely knowledge of the direction of the current market is also important to understand. Is a property likely to sell for more or less than it did three months ago? A thorough understanding of the buyers’ wants and needs is obviously needed as well. These are areas where the art comes in.
Still another unpredictable factor is that each seller chooses their own asking price. Each will listen to the advice of their agent to a greater or lesser degree, and each agent may be more or less skillful in giving advice on pricing. It’s also not uncommon for sellers to be unconsciously influenced by their own sentimental appreciation of the home they have lived in.
In short, there are many variables involved in evaluating what a good price for a home might be, from both the sellers’ and the buyers’ perspectives.
Occasionally, we come across a perception in buyers that an appropriate offering price, and/or purchase price, should be based on a percentage above or below the asking price of any property. This kind of thinking assumes, incorrectly, that there is only a science involved in deciding on an acceptable purchase or sale price of a property.
For other kinds of purchases that approach might work. For example, one might look to purchase a certain model of car knowing that whatever dealer one purchases from, it will be the same car that arrives from the factory. In that kind of situation a statistical approach can work: what is the lowest dollar amount I can pay for the same item? That might be guided by comparing the purchase price to the asking price, the MSRP. In that case science alone might be a good guide.
As described above, the purchase of a home does not conform to that kind of scenario. It would be unwise for a buyer to get hung up on the same kind of comparison to asking price. It would be, by my description, falling prey to the myth of the asking price. That asking price is based on a number of perceptions from the seller’s point of view. Buyers need to make their own evaluations of a fair price, based on their considerations of both statistical and subjective examinations, not on simply applying a formula to the asking price. In real estate there is no substitute for the advice of a skilled and conscientious professional, based on both science and art.