Clients often asked me if a listing price is fair.  If you’re a buyer from out of town and scouring the Sequim MLS online, you will come to a home that looks like it has a lot of potential, but you’ll be wondering if the listing price is fair market value, wondering how much would you offer if you do write an offer.  There’s a lot to that discussion, but here’s a synopsis of the kind of analysis I do with my clients, and this can help you analyze a listing price.  The following is an email to a client who asked me about a listing price.  I’ve disguised the property addresses and the prices (which will change the math a little) to protect the innocent.

Listing Price

Question on Listing Price

You asked how much I think this home is worth in this market.  Good question.  It’s listed now at $438,000.  I’ve shown several homes in this neighborhood over the past several years, and I’ve watched which ones have sold and for how much.  So I can walk through this home at XX Street and picture exactly what every room looks like and compare it to the others.  Here are a few thoughts about value.

Listing Price v. Replacement Cost

The first numbers I like to look at are the cost of buying this lot today, doing the excavation, and getting a well and septic connection, and building the house.  This is a medium custom quality home, and the cost here of building a home like this averages $125 per square foot.  With 2,217 sq. ft., that totals $403,000 ($278,000 for the house construction, $100,000 for today’s price for an acre in this location, and about $25,000 for the rest).  The original owners built this home near the peak of the market in 2004.  That’s unfortunate for them, because they would most likely have paid a lot more for the land at the peak of the market, perhaps $150,000.  They also might have paid a premium to build the house, depending on who their builder was.  But based on today’s values and costs, I would estimate the replacement cost of this home at about $400,000.  That’s very realistic.

Listing Price v. Comps

The next numbers I like to look at are comparables.  I’ll just use one comparable for this example, but it is probably the best most accurate comp anyway.  It is a few houses down the same street on the opposite side.  It is also a custom home, and on the same size lot, and the home was also built in 2004.  I showed this home several times, and it is now sold.  It is 2,290 square feet (compared to 2,217).  It was originally listed for $424,700, and sold for $392,450. 

Here’s how I compare the two.  The home that sold at XX Street is very comparable in every way.  It sold for $170 per square foot.  The home at XXX Street has a listing price of $198 per square foot.  Based on a sales price of $170 per square foot times 2,217 sq. ft., the home at XXX Street would be worth $378,000.  This is a very solid number.  We don’t normally have such good comps to use as we do in this case.  It is somewhat below the figure I calculated for replacement value, which also is consistent with the fact that homes are selling in this market for less than the cost of construction today.

I’m confident that $378,000 is a reasonable price for this home, although it would probably cost close to $400,000 or more to replace this home today.

It is possible the sellers have a large loan, and their loan plus their selling costs might prohibit them from selling it for $378,000.  Of course, we won’t know how much they would sell it for until we try to negotiate a lower price than their listing price. 

Possibly Related Posts: