One of the most frequent questions I get asked is “how do you value my home”? Especially in today’s world with Zestimates, assessed values, and a myriad of other “valuation” tools out there, many homeowners think 2 things, that sadly could not be further from the truth:

1. That there is any type of exact science to valuing properties

2. That any of these tools are adequately accurate.

Let’s nip the 2nd point in the bud right now. Let’s say you were back in school and taking a test. If you were like me and had to do 5 years of high school, I assume you would be pretty amped up with a score of 90%, right? That’s an A-, heck what if you got percentage calculations 95%? That’s an A, you’d be real psyched, true? Probably get that recommendation to the Ivy League school…..

OK, well, what if you hired me to sell your home (price of $500K) and I used that same margin or error and mispriced your home by 5-10% (or in YOUR dollars: $25,000-$50,000!!!!!) . I don’t think I’d get that Ivy League recommendation from you…Truth is, any automated valuation tool out there has at least a 5-10% margin of error, and many times it is far greater than that. Nothing substitutes for an in person EXPERT price opinion. Period.

So, how does one get that? Research your local market and ask friends, family, and colleagues for referrals for a GOOD real estate agent. Then vet them diligently. This will entail asking for client references and testimonials, demand to see their SOLD property track record, find out what that means in the context of the local market (actually check out our link for the right questions to ask a potential agent).

Want some eye opening statistics:

– 65% of the sales volume done in Boston is done by 10% of the agents
– There are thousands of licensed agents in Boston
– Only a small percentage of agents do more than 7 transactions per year

Bottom line: quality is few and far between when it comes to relators. What good is an “expert price opinion” from someone who sold 2 places last year?

So, after all this rambling, and suspense, the question remains: how does an expert realtor come up with a valuation? My process is 3 fold. I look at comparable sales data (commonly referred to as a CMA (comparative market analysis), market analytics and last and far from least is the concept of “gut pricing”.

1. CMA

In this method like kind properties are examined and attributes are compared, weighed and then adjusted to come up with a suggested price. Example is that property X was 1,000 SQFT and sold for $500K, and it is 1 block away from your property, in a similar building, has similar finishes, and thus your place at 1,100 SQFT would be adjusted up due to its larger size. Contrary to what many people think, this may not be adjusted exactly at 100 SQFT * $500/SQFT seen in property X. There is this thing called functionality of layout that cannot be arithmetically calculated, that well, is like, uh, only maybe one of the top 3-4 most important variables in pricing…..Try telling that to the CPA who is thinking of selling his unit:)!

2. Market Analytics

This is simply looking at market trends since the purchase date and applying that data to the pricing equation. Example is property A was bought in 2008 in Back Bay. Since 2008, the Back Bay market is up 28%. Again, this does not mean that this specific property has appreciated at that rate, but it is a good barometer to keep in mind when drilling deeper into the valuation.

3. Gut pricing

Let me preface this part by acknowledging that this may not be what you want to hear, but trust me, I have a BIG gut, just look at our videos….Gut pricing is truly perhaps the most integral element of pricing. Having the hands on, in the trenches experience of seeing thousands of properties every year, and more importantly the market’s reaction to them, is the best way to become an expert in market valuation. It’s that simple. When you compound that experience with the data points used in CMAs and market analytics, then and only then can you become a true expert.

I sold 41 properties last year, and my average list to sale price ratio was 100.3%…

That’s not an A-, and it’s not an A…that’s an A+. Compare the market discount rate using the average sale price in our market of 2%, and our clients have about 10,000 reasons to write that recommendation…..