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.
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