“priced correctly” is a moving target. Generally speaking, recently SOLD equals “correctly priced”. To value something you have to do a “comparative” valuation. That’s where the word “comps” comes from. Compared to these that have sold, and these that aren’t selling at X price, what is the value of “the subject property”.

You add and subtract for strengths and weaknesses. You can start at low and work up, or high and work down. When valuing a property for a seller and assisting in the strategy to establish an asking price, I tend to start at best case scenario and work down from there.

If the highest price recently attained (same complex) is $500,000 for a property assessed at $385,000 and the property I am listing is assessed at $370,000, it starts like this. $500,000 divided by $385,000 equals 1.2987 times assessed value. Then you take that factor times $370,000 (assessed value of subject property) and you get $480,519. So even though the two townhomes have the same square footage, they would not be “worth” the same price.

That will account for inherent differences for the most part, like 1 car garage vs. 2 car garage, better location, view vs. non view, 2 bedroom plus den vs. three bedroom, etc… The assessor will have adjusted for inherent differences to some extent.

Then you have to look at supply and demand. Are there more properties on market and more buyers “in play” both? Are there fewer properties for sale due to recent sell off and more buyers in play due to seasonal changes?

Then you look at the differences not accounted for by the assessor, wood floors vs. 12 year old original carpet with stains. Granite counters vs. 4″ tile countertops from 1995 with dirty and deteriorating grout. New heater and hot water tank, vs 14 year old heater and hot water tank.

Price per square foot is not a factor used by most professionals when valuing property. The valuation scenario works more like the one above, though I tend to use differences in assessed value more than appraisers or most agents.

Price per square foot is an easy concept for many to grasp, but not really of much use in the real world. If you don’t account for the inherent differences by comparing assessed value, and separate the land assessment from the property assessment when doing so. If you don’t account for the “improvement” differences not accounted for in the assessed value. If you don’t adjust the assessor’s value spread for market considerations. You can easily overpay for a property by using a price per square foot comparison.

As to “houses in desirable locations…priced correctly”, pretty much yes. If a house that just sold in the neighborhood in a very quiet location recently sold for $600,000, then you have to determine the “discount” for noisy location, or backs to main street, or can count 10 cars per five minutes from master bedroom window. Generally if you can see traffic going by at a steady clip from any room in the house, that discount is greater than simply hearing the noise. A deeper discount if you can see those cars from the master bedroom or main living areas than if you can only see them from the smallest 5th bedroom.

Then there’s good side of street vs. bad side of street if there is a slope. High side sells higher price per square foot than lower on same street, if slope causes house across the street to sit below pavement level. If you pay the same price per square foot for the lower side of the same street, even the same house directly across the street, you will be overpaying.

Price per square foot only works where all other things are equal…and rarely, if ever, does that happen.

So if best of neighborhood sells for $500,000 and 45 days later worst in neighborhood sells for $475,000, the market didn’t “go down”.

Are you claiming that only houses in desirable locations are priced correctly?

To post them from the 1st to the 31st on the 31st gives you a false negative perspective. The truth is bad enough…I certainly don’t want to make things look worse than they are. If I posted month to date instead of year to date on the solds it really would produce a false negative result as the closings in the first week would be accurate and in the last week would not. So weekly change and then month end after the first week into the new month is the only way to be accurate and not misleading.

Alan,et al…

Say a condo sells at less per square foot, but one has a two car garage and two reserved parking spaces and storage. The other has no parking. Both in the same complex. Say two houses sell and one is on the culdesac with a 12,000 square foot lot and the other is the first house in behind the monument with the traffic light blinking in the master bedroom window. Same complex, same schools, same builder, same floor plan.

When you track price per square foot on a month to month basis, you don’t have enough like kind data to determine if this was the month of selling off the crap vs. last month when there was more new inventory that included more prime properties in the mix.

I visit the properties that sold in the first 30 days, as that market often predicts where prices are headed, and what you have to discount from in order to sell. If Best in Neighborhood sells for $650,000, what is the discount for busy road? For poorly maintained? For smells awful? We don’t lump it all together.

We need to know price for best to determine price for worst. Days on Market does help to sort the pile into its relevant categories. Rarely is time on market about price alone…it is about insufficient discount for comparative negatives.

Some asked why we look at property for sale and not just “the comps”. Looks like those looking at “just the comps” are not the ones selling.

As agents we don’t look at Price Per Square foot at all…not really. Are methods are quite different. I just listed a condo in Issaquah. I priced it to beat all competing properties on market by $10,000. That is all properties inside that complex. I also priced it $15,000 below what the owner paid for it. I did not look at price per square foot.

The model I have listed runs slightly different. One is 950 square feet, another is 958 square feet. That makes no difference to me or a buyer or a seller. Minor differences in the square footage that do not alter anything of consequence are ignored. Two bedrooms, two full baths and the layout of the living space. Top floor vs. not top floor. Parking differences, garage, 1 reserved spot vs. 2 reserved spots. End unit vs. not end unit.

I only post price per square foot “to feed the lions” so to speak…in my real life of pricing property for buyers and sellers, we do not use price per square foot at all.

I’ll write a post about that. Days on Market is MUCH more important than price per square foot to me. % not sold at all is MUCH more important than Solds and In Escrow, and making sure those not sold have inherent defects, rather than simply market conditions.

When are we in really big trouble? When the best of the best and priced “right” doesn’t sell. That is trouble. When a house on a busy road doesn’t sell, we don’t get worried. When houses that need work don’t sell, we miss the flip guys, but still…it becomes a missing link in the buyer pool. When a great house in a great location priced at or below the comps in perfect turnkey condition doesn’t sell…then there is trouble.

Where is that trouble? Condos in Renton for one, especially those trying to turn over condo conversion properties within two years of purchase. There is an old rule of thumb, if the resale condos don’t move, that will have a lagging affect on every leg up property. That is what I am watching…the stats are for you guys to play with, not for me to do my job.

If you would prefer that I base the stats on reality and what really impacts real estate, I’d be more than happy to switch out from what has been requested to what really matters.