Earlier this week, I wrote about a couple that I’m working with that is looking for a home and made the smart decision to walk away from 3 homes that they liked in order to make a sound financial investment. We went looking at homes again today, this time in St. Charles County, and they found a house that they really liked.
I just finished a pricing analysis to determine if the price represents a fair price, or if it will be just another of the many overpriced homes.
The house actually looks like a great deal. Most of the homes in this subdivision sell from more, and there is very little turnover. In fact, I had to go back a few years just to find some comparable sales in the subdivision. Low turnover is great for a subdivision, but normally creates problems for agents when trying to set a price without similar recent home sales. Fortunately, my broker offers exclusive software, Precise Pricing, that allows me to evaluate the annual appreciation rate for each homes that has sold in the subdivision to identify the subdivision’s average appreciation rate. Once you know the subdivision’s current appreciation rate and the last purchase price of a home, the program then calculates what the price of the home would be if it had earned the same appreciation as the rest of the owners have been getting.
The subdivision that I’m evaluating has earned an average appreciation rate over the last 2+ years of 3.6% annually. The homes that are currently on the market are averaging 4.2% appreciation if they get their list price. But, the house my clients like is only asking 2.7% appreciation and the previous owners only earned 3.9% appreciation even though they owned it during the boom years. The end result is that the current list price is actually lower than what it would have been priced if you were simply going on average appreciation.
But, appreciation isn’t the only factor when pricing a home. Luckily, this house seems to have all the features of the comparable homes and is in great condition. Everything is pointing that this house is a great deal until you notice that the house has been on the market 273 days. Granted, they started out priced $25,000 higher which was too high for this floor plan. But, the entire subdivision has fairly high days on market over the last 2 years.
I decided to take my analysis one step further to see if I could confirm what my instincts have been telling me for a while. The current gloom and doom news is scaring buyers so much that many are sitting on the sidelines. And, the buyers that do decide to move forward are being very conservative in their purchase price. It’s a good move for many buyers, but it does put a crimp in the market for higher priced homes.
Here’s what I found when I ran a search on all homes that have sold in the last year in St. Charles County in the Francis Howell School District.
|Sold Price||# Sold||Avg. DOM||Avg SP:LP|
* DOM = Days on market
* SP:LP = % sale price to final list price, or the % the seller came down from their list price
Yes…I know that there is a little overlap in the price ranges. My goal was to capture the sense of what people are doing in different price points, and $249,000 and $250,000 really could fit in either the higher or lower range, so I put them in both.
The numbers confirm what I thought was happening. There are a lot of buyers that are keeping their price as low as they can. There just aren’t as many buyers as the price goes up, and the result is a higher days on market for the ones that do sell.
Since the house my buyers are looking at is in the $274-$300k range, I’m not so concerned about the high days on market. Eventually the market will turn around and buyers will start feeling comfortable spending more on a home. If my buyers decide to move forward and make an offer on this home, I’m confident that it will be a good investment.
I work with buyers throughout the St. Louis region. If you are thinking of purchasing a home and would like to work with an agent that will do a full data analysis before you make an offer on a home, please contact me to discuss how I can help you find your dream home that will also be a good financial investment.