I spoke recently at a local Realtor group about how Realtors could “think like an appraiser”. By being on the same page as the appraiser I believe that there will be less value issues on the back end of the sales transaction. By following similar methods as appraisers to arrive at their list prices, Realtors can be proactive in their pricing strategy.
The method of bracketing sales is the topic I wanted to focus on today. Bracketing refers to the method of choosing sales comparables that are both inferior and superior to the subject property in various features and characteristics. For example, you may want to compare the subject to recent sales that are both bigger and smaller in square footage than the subject, not just one or the other. In addition, you could choose sales that are inferior and superior in updating or features.
The logic behind choosing comparables that are superior and inferior lies in how adjustments are made to the sales. If a sale is superior to the subject property a downward adjustment is made to the sale, and if a sale is inferior to the subject property an upward adjustment is made. So lets say you have one sale with a fireplace, while the subject does not have this feature. If the fireplace is worth $2,000 you would subtract $2,000 from the sales price of the comparable. If you have two sales that are similar to the subject in all but the two different features, one being superior and the other inferior, you can estimate the value of the subject by adjusting for the differences. In a perfect world after you adjust up on one sale, and down on the other sale, the adjusted sale price for each one would be the same, and that would be the indicated value of the subject. This is not exactly the case in the real world so there is a range in “adjusted values”.
While a Realtor would not usually go into such an in-depth analysis as an appraiser with the specific dollar adjustments, performing a simplified qualitative analysis that looks at homes that are both inferior and superior can provide a decent value estimate of the home that is based on actual market sales activity. By picking a sale that is superior to the subject you know what the high end of the range is, and the inferior sale would reflect the lower end of the range. This method also lends credibility to the Realtor who provides sales information to the appraiser. By including sales that are above and below the list or contract price the Realtor could not be accused of trying to influence the appraiser with only the high price sales. What method do you use for coming up with a list price? Leave me a message below, I would appreciate hearing from you about your methods.