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Home Listing Price

Is The Listing Price Fair?

Chuck Marunde by Chuck Marunde
April 9, 2012
Reading Time: 3 mins read
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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. 

Last Updated on April 9, 2012 by Chuck Marunde

Tags: Listing Price
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Chuck Marunde

Chuck Marunde

Chuck grew up in remote Alaska, graduated from the University of Alaska with a degree in Economics and Teacher Certification, and after teaching high school for two years, went to law school at Gonzaga University in Spokane, Washington. He served four years as a Captain and JAG in the USAF at Nellis AFB in Las Vegas. After practicing real estate law for 20 years in Washington, Chuck founded iRealty Virtual Brokers covering Sequim and the beautiful Olympic Peninsula. He is the author of 2,200 real estate articles and 60 books, and he produced over 100 real estate videos. Chuck combined his love for real estate and technology to create a massive Internet presence, and his articles and videos and books have been viewed by millions. Chuck is a well recognized real estate expert and his counsel is sought by other brokers and practicing attorneys around the country. Buyers from New York to Hawaii and from Florida to Alaska seek him out to retain him as their Sequim Buyer's Agent. 

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