The Statistics of Pricing a Home – Part 1

by Mark Buford on March 14, 2011

in How to Price Your Home,Price Trends in the Neighborhood

How easy can it be?

If you have a home almost identical to yours that sold recently, that’s may be just enough information to price your home. That assumes all other things are equal, such as the sales trends in the area you live in. If you don’t have this perfect situation, then the following is a systematic way to determine the price of your home and how the sales prices are trending.

Step 1: Get the Data of Home Sales

The goal is to understand how the greater area you live in is behaving, or tending, and eventually find how your individual neighborhood is trending. If your area is trending differently, you need to be weary that there is most likely some sort of time lag and your homes area may shift soon in the direction of the larger area.You can go back as many years as you like

Finding data may be a problem for a home owner, and perhaps some real estate agents, though all agents who subscribe to a listing services have the information readily available.

There are most likely places in the internet to get sales data, and I will try to find those at a later date and post them for you.

Step 2: Find out how the greater area is trending

For the most part, getting the monthly statistics of home sales in the county is good enough. For instance if your goal is to find out the price of a home in the Sunnyvale real estate market is, during this step, it is fine to look at the county to find out how the greater area is trending. This is a baseline to compare against. If you live in Laguna Beach, getting the trend of Los Angeles county is too broad. You would focus on the coastal communities and perhaps inland to include some upscale areas, though this would be venturing into step 3.

Step 3: Determine the area that your home is located

This is where you need to have local knowledge of the area. For instance, for Sunnyvale real estate, you could roughly break it up by zip code, though this may not be totally accurate. You want an area big enough so you can get a sense of how the greater local community is trending.

Step 4: Localize your direct neighborhood

Now you need to find the area that like type homes are locate,where your home is in that selected area. This may include school district, street traffic, noise, safety, and many other factors. At this point, the greater trend charts can point out how far back you can go to get home sales information that is in a consistent trend to today. To be safe, if you have enough sales data, go back 2 to 4 months. Most likely, you will need to go back a minimum of 6 months and up to 2 years, so long as there has not been a big change in the market.

Step 5: Get individual home sale data from the identified neighborhood

Here you hopefully will have like type homes, for instance if you live in a tract, where it is easy to compare. If not, you may need to look at homes with different characteristics and make subjective judgments from that data, such as 4 bedrooms when yours has 3. Further posts will discuss these differences and possible ways to come to a conclusion.

Using the trends you established, you can now make a judgment on the price of your home.

More will be discussed on this, and unfortunately, even following this formula may not be enough for you to make a solid decision on the price of a home

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Post by Mark Buford

Mark has written 37 articles.

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