More on the Science and Art of Home Pricing
Freshly back from our Berg Bicentennial Vacation, I was catching up on some reading when I stumbled upon an article titled “Seven Ways to Make Your Home Safer.” Now, I’m not generally one to be critical of Zillow (insert sarcasm here), and in all fairness, they were talking about burgler-proofing, but they missed a very important home safety tip.
Do not place a rather large gathering of empty suitcases at the top of the stairs if you intend to wander out into the darkness at 2:00 am in a jet-lagged stupor in an attempt to navigate said stairs.
That would be Steve, who coincidentally is the genius who thought the top of the stairs to be the ideal luggage staging area. Fortunately, he was able to right himself somewhere midway between slightly scathed and dead as a doornail. After a brief episode involving cursing like a drunken sailor and blaming the me, the dog, and Samsonite (in that order), he realized he would live to close another escrow, even if his days as a leg model were over.
And this brings us to my most logical segue. Determining home value is some science but a lot more art. (Okay, there is no nexus whatsoever between home pricing and our health insurance deductable, save the fact that the magnitude of the numbers is eerily similar, but it’s the best I can do this morning given that I’m still running on Caribbean time.)
Agent Extraordinaire John Lowe of San Diego Castles Realty fame made a presentation at a recent office meeting in which he shared a big, scary pricing analysis. It’s scary because it has lots of bars and lines and data points. (For our three readers, John is notorious for analyzing the daylights out of stuff, and we love him for this. He’s got spreadsheets, and he’s not afraid to use them.)
What he did was look at sale prices over the past six months in Scripps Ranch. (Data courtesy of the Sandicor MLS, detached homes in the 92131 Zip code, information is deemed reliable but not guaranteed, blah, blah, blah.) And here is what he found:
The red bars represent the square footages of each of the sold properties for the six-month period ending on whatever day our office meeting was last month, while the black and red lines represent the smoothed and linear trend lines for price per square foot. So far, so good. We see what we would expect, which is price per square foot dropping as the size of the home increases. (This is because the biggest component of price is the price of the dirt, not the box built atop, and lot size doesn’t vary much in our area.)
In theory, one should be able to use this graph to estimate that value of their Scripps Ranch Home. Find your square footage on the left, y axis, and move to the right until you intersect the pretty little black or red lines. Voila! Your value! Think of it as the John Lowe equivalent of Zillow’s Zestimate; we’ll call it a LoweValuation. But much like the Zestimate, the LoweValuation is a left-brain approach to a right-brain problem. Every home is different, and the things that are arguably the biggest influencers of market value aren’t the dry, vital statistics.
Sure, size matters. But things like view, location, interior appointments, nature of the sale, and so on can’t possibly be accurately represented in a fancy algorithm or an Excel spreadsheet. You can’t model emotional triggers.
Just look at the individual data points, and you will see that there are wide swings in value among individual homes in similar size brackets. The art form, therefore, is determining whether your home is special (that dot above the trend line) or a little less so (falling below the trend). This is where (self-serving alert) an agent knowledgeable about and actively engaged in your market can help.
By the way, this was precisely John’s point when he shared his handy work. Statistics are fabulous. They are oh-so helpful in understanding macro trends and the state of a market. But these statistics and the valuation models they spawn – whether they be served up by Zillow, Case-Shiller, or our own Mr. Lowe – should never be considered in a vacuum. Your home is unique, and your mileage will vary.