1. Find a similar property listed on the MLS. By similar I mean the same number of bedrooms/bathrooms in the same location.
2. WRONG. That house is better than yours. Pick a slightly less desirable one. Your house is not as special as you think it is.
3. Write down the listing price.
4. Multiply this number by 0.97 - listings on the MLS that are selling are averaging about 97% of asking.
5. Multiply this number by 0.95 - this is an additional adjustment factor due to the high number of listings and low number of sales in the current market.
6. Round down to the nearest cool sounding number
Take for example this townhouse in Millwoods (Edmonton) listed at $327,900.
Find a similar listing on the MLS like the one here for $255,000. Same building same square footage.
Since this is on the MLS and hasn't sold yet its fair to say that it will likely sell for under asking. Average is about 97%.
255,000 * 0.97 = $247,350
Apply the extreme market conditions adjustment factor
247,350 * 0.95 = $234,983
round down
$234,900
Steps 1-3 are the most important. If there is a high inventory and low level of sales on the MLS why would someone spend significantly more to buy privately?
3 comments:
One thing I just wanted to note and I know this isn't what you intended, but it can be interpreted like this:
“So let’s say the comfree guy did what you suggested and came down to the market value of $234,900 given the formula and reasoning you provided, then based on your wording, any other similar units that come onto the market should be brought on at 95% the value of the lowest seller in order to sell first.”
Although I agree in order to sell your home quickly you need to sell at an aggressive number, it seems that this only applies to the “moth to light syndrome” type people who think that they're sitting on a gold mine when all they have is a house.
Also, it’s not to say I disagree with your calculations, I think if this was done the market would spring back to life and we’d actually have larger volumes of property moving, but it’s a slippery slope as pointed out in many of the blogs surrounding Alberta RE. There will be that magic number for buyers that when it is hit, people will start moving back into the housing market (rent vs buy calcs point to buying as favorable) and we could end up doing all these discussions all over again, it just depends how quickly we go from peak to valley that will dictate how stupid people are in the frenzy of flip this house again. Although right now I think many of these individuals will be gun shy next round and maybe plan alittle better.
Just my 2 cents.
I think the last adjustement steps are more optional to increase the chance of selling. Really to match a price of something on the MLS is a good start.
I mean seriously you can buy a half decent house in Millwoods with a 5000+ sqft lot for the comfree price.
While the Edmonton market will bottom, I doubt it will bounce back with too much force. That townhouse at $234,900 will not cause a stampede of in migration. The market needs increased sales volume and lower inventory just to stabilize right now.
That is of course my opinion. I was concerned about the total detachment from reality and frenzy persisting in Vancouver and Saskatoon making Edmonton look like a "reasonable" option. But those cities may be in meltdown mode before Edmonton totally recovers.
haha.
Your advice is funny. Didn't you know that they are just following the 2006 advice of "list your house 10% above the last sale and wait a couple weeks for the market to catch up!"
Needless to say, inflection points in markets are very difficult for the masses to not understand.
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