Why Price Forecasting is Harder than it Looks

In real estate, home values traditionally are based on recent history. But market stats show that, without using a little expert intuition, your asking price is probably going to be off. For this reason, some of us believe it’s time we stop driving forward while staring into our rearview mirrors. (That’s dangerous, you know?)

When the time comes to sell your home, the first thing that most Realtors will reach for in order to determine its value is the sales history for your area. They’ll be looking for houses in the same neighborhoods and with similar characteristics like square footage, number of bedrooms and baths, so on and so forth. Those recently sold listings we refer to as “comps,” which is short for “comparable homes.” Small differences between the most similar comps and your home can be evened out through a system we call “competitive market analysis,” or CMA, which basically adds and subtracts the value of certain features, in order to determine what that same buyer (who bought the comp) may have been willing to pay for your home instead.

Meanwhile, websites like Trulia and Zillow use a combination of comps and tax assessments to estimate value—but neither of which do they draw from truly accurate sources, by the way, so beware of their data. (Feel free to ask me for more info on that subject. You’ll be amazed.)

But here’s the problem…

Looking at the past doesn’t give you nearly enough information to be able to properly price a home.

If you use comps that sold between January and May to price your home in June, you missed the big picture. Why do most Realtors continue to utilize these methods? It’s easier. And it’s familiar. And it has its place, so long as it’s backed up by additional market knowledge, intuition, and experience in an agent who’s willing to dive a little deeper to arrive at the right number.

In a traditional CMA, you won’t see adjustments for things like: current inventory, lending rates, seasonal changes, consumer trends—all of which bear immense influence on the behaviors of home buyers. And mis-pricing your home could cost you tens of thousands of dollars!

Using Comps Cautiously

We can’t ignore history. But the recent past should be considered more of a starting line than the gospel on home values. Markets are dynamic and the more rapidly they change, the less value comps offer.

Setting a proper value for your home requires experience and a willingness to go the extra mile in our work. That includes staying involved and knowing the market so well that you feel comfortable relying on a little intuition. If you’ve chosen the right realtor, then then forecasting isn’t hocus pocus, or like peering into crystal ball. It’s called expertise. And isn’t that what we get paid for?

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