Our clients are considerate people. They often say things like, “I don’t want you to spend a lot of time doing a market study, just tell me if you think the condo is worth what they are asking.” That’s nice, but: We can’t give a professional opinion without doing the math! It is that simple. Only when prices are hugely out of whack can we make a face and say, “No, that’s way high” or “No, that’s way low; they are looking for a bidding war.”
How we figure out Fair Market Value
Real estate is a very imperfect market. Perfect, in this sense of the word, means one thing is like another. No two houses are the same. Even when they are first built, little differences in light, and lot, and finishes are built in. Then after 10 or 30 or 120 years, rooms have been added, walls knocked down, repairs were done or not done.
There is no single “fair market value” (FMV) established by a Comparative Market Analysis (CMA); it’s usually a range of $5-10,000 or so. A thoughtful person with the skill to calculate for the imperfectness can get an estimate of what the property should sell for, based on what other people have been spending on properties like it. As always, the devil is in the details.
CMAs are not based on a single house that sold nearby. They involve looking at three or more properties and the market trends. A CMA is the best tool we have.
CMAs will indicate what other buyers are paying for houses or condos near and similar to the one that is for sale. Asking prices are very poor indicators of market value. So are municipal assessments and Zillow “zestimates.”
How markets change:
There was a classic boom-bust in real estate that peaked in 2008. In 1995-2006, buyers were paying more than what CMA values were showing. During those years, I frequently found one house selling for $20-30,000 above everything else like it. Some of the time, it was the only one, but rarely, as the market heated up. Once there are three of them, it’s the new fair market value (FMV), as established by CMA data.
On the other end of the cycle, when inventory piles up, sellers lose faith in getting fair market value (FMV) for their property. Some will sell for below the CMA level. That’s a buyer’s market scenario. Just as buyers willingly overpaid CMA levels and drove prices up, sellers will accept less than FMV levels, because they have to sell. This will drive prices down. The trick is knowing how to figure out which sellers can be driven down. Once three sellers do that in a neighborhood, we have deflation in the next CMA there.
CMA and the market we’re in
In 2023, there are plenty of buyers still paying top dollar, based on CMA data, for houses and condos. Although sales volume is generally down, there are a high number of fast sales. What buyers will pay shifts based on supply and demand. In greater Boston, I don’t see a revolutionary boycott by buyers. There are still demand pockets that are making me pull my hair out. Deflation? I’m all for it. I’m a buyer’s agent. It’s just not here yet for me and my towns.
If you are looking for sellers who will be the first on the block to sell for less than CMA value, we’re with you! We are out there trying to do just that. It is possible to get a better-than-average deal, sometimes.
If interest rates remain higher than expected, or consumer confidence in housing drops, or more layoffs make workers leery of taking on a big mortgage, there might be a slowdown in demand. Then, we might see a buyer’s market again. It’s been about a decade since the end of the last one.
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