So by now we all know that the Pleasanton and Tri-Valley real estate market is on fire. Inventory in most price segments is scarce, and buyers are seemingly everywhere. For some buyers, buying a house today has become a frustrating and nerve-wracking experience. And if that is not enough to confuse and aggravate even the calmest buyers, an over-heated market like this creates issues with valuation. The question every buyer has when they are lucky enough to find a house that is actually available in their price range is “what is it worth?”. Great question, but hard to answer.
The problem lies with the definition of value, or more specifically market value. In a normal market (we haven’t seen one of those in a while), inventory is abundant, and the pace of the market is calm. Buyers actually have time to carefully consider their options, and mull over their strategy. As agents, we can look at comparable sales to help determine what a reasonable price is for a given property, and we can take a calm, reasoned approach to arriving at the offering price. In this type of market, agents in essence assume the role of an appraiser… looking at recent sales, adjusting for various factors, and helping the client arrive at a fair price. Market value is strongly related to recent sales data.
However, when the market is unbalanced and overheated, things get more complicated. Yes, we still look at comparable sales data to get a picture of what has occurred recently. That is one component of determining the market value of the home. But we also have to consider the demand component. When there is extreme demand for a given property, that must be taken into consideration when determining the value. By definition, a property is worth what a buyer is willing to pay for it. It is possible, if not probable, that some properties will sell for more than what the data suggests they should sell for. As a buyer, you need to consider demand for a property when deciding what price to offer. Here are some tips:
1. Asking Price is NOT necessarily the market value. Try not to equate the two. Some buyers have the mind set that the asking price represents the market value, and they want a discount. The reality is that the asking price might be below the true market value, and the final sales price in that case will be over the asking price. And yes it is possible to over-price a home as well. If you are not willing to pay the asking price, then you are narrowing your pool of possible homes to only those homes that are overpriced, and therefore possible to buy below the asking price. Why pass on a significant slice of the market just because they under priced it?
2. Appraised value is NOT necessarily the market value. It is not uncommon for homes in this market to have the appraised value come in below the sales price. This does not mean that the property is not worth it. It means there is not enough qualifying data (comparable sales within the strict
parameters of the appraisal process) to justify the purchase price. The reality is the market value might be well above the appraised value, and there are buyers who will purchase the home even if it does not appraise at the sales price
So if you are a buyer trying to determine what to offer, consider the asking price, how long it has been on the market, the appeal and amenities of the property, and lastly how many other offers or interested buyers there are. Your agent should be able to offer guidance to you in this situation. Happy hunting!