Reprinted, with additions, from Boston.com Real Estate Now (April 2009.)

Rona Fischman wrote:

Em3’s comment is from March 30, 2009 chat:

em3’s comment:
as buyers, we are refusing to pay top dollar for homes that aren’t worth it, (i.e. house needs gut job, rehab, school system is only ok, etc.) What if we see a fair market value as below the 5-20k you mentioned?
I answered:
that’s not fair market value, that’s your gut market value. Fair market value means someone else is paying that much for something like what is for sale.
The term for people who will only buy something for less than what it is worth is RENTER.
OK, now that I have the rude joke out of my system…
you may be able to get $5-10K off a fair market value if the seller is in distress. I research the sellers to see if I can find something that indicated distress.

Here’s a longer, and less snarky, answer to a good question:

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 done or not done.

 

So, I agree, there is no single “fair market value” established by a Comparative Market Analysis (CMA); it’s usually a range of $5,000 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. It involves looking at three or more properties and the market trends. This is a far better way to sell a house then waiting for a buyer to buy based on a gut sense of value (which for a seller is inflated, just as for a buyer it is deflated.) 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.” But, I will get into that another day.) Back in 2007, when I first wrote about CMAs, I did a quick survey of asking prices and final selling prices. They were, as expected, all over the map.

 

$419 to $364.5
$449 to $350
$539.9 to $395
$575 to $449
$599 to $430
$529 to $475
$499.9 to $450
$659.6 to $590
$640 to $568
$600 to $570
$789 to $625

 

ronagraphicHow markets change: 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 were three of them, it’s the new FMV, as established by CMA data.

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 to drive prices up, sellers will accept less than CMA levels to drive them 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.

Em3, unfortunately, does not speak for all buyers. There are plenty of buyers still paying what he calls “top dollar” for houses that he sees as are not worth it. 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 is 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.

Those of you looking for sellers who will be the first on the block to sell for less than CMA value, do your research and good luck. My buyers and I thank you for your help driving the prices down. I am out there trying to do the same thing.