The Art of Home Pricing in a Tough Market

As the Florida housing market continues to sputter, home buyers and sellers are be increasingly forced to test their resolve and savvy.

But regardless of whether you are a buyer or seller, or what the current market conditions are like, the key is getting the right price, which is always going to present a real challenge. Luckily for many, the art of property pricing is becoming widely available and consumer-driven as the deflating U.S. housing market grabs headlines.

Sales of previously owned homes fell by 2.8 percent in January, according to the National Association of Realtors. That’s the fifth monthly decline in a row and the slowest pace in two years. New home sales have fallen off five percent in the same month, the U.S. Commerce Department reports.

Another sign of a slowdown is that more than a half-million new homes are sitting unsold, staying on the market about five months. Builders are now offering more and more incentives, such as kitchen upgrades and swimming pools in some markets, although they are finding fewer takers as Florida home loan rates rise.

PRICES REMAIN HIGH

While industry analysts forecast a five percent decline in U.S. home prices this year, home prices held steady at a median $211,000 as of January. The boom taking place in areas benefiting from demographic, retirement and job shifts has also given experts optimism. In the latest report from the Office of Federal Housing Enterprise Oversight, which monitors Fannie Mae and Freddie Mac, the top 10 states in home-price gains also showed growth of more than 18 percent in the fourth quarter of 2005.

Soundly eclipsing the average U.S. home price increase of 13 percent were:

• Arizona (35 percent)
• Florida (27 percent)
• California (21 percent)
• Washington (18 percent)
• New Jersey (16 percent)

Not surprisingly, five of the top 10 hottest metropolitan markets in the U.S. were right here in the Sunshine State, with the Florida housing boom’s record run peaking in 2005. Phoenix was the most torrid in the list, showing a single -year gain of almost 40 percent.

PIECING TOGETHER THAT PRICING PUZZLE

Pricing has never been more important. Right now people face two perennial problems. First, if buying, how do you avoid overpaying? Or, if it is time for you to sell, how do you refrain from overpricing? The answer is to get good information. This is essential and your real estate broker may not be the best resource.

Ideally, you should work within a realistic range that accurately reflects market conditions, not the greed of your agent or the seller’s ego. The industry benchmark is to have your home priced with about five percent of recent selling — not listing — prices of recent comparable sales.

Enter Zillow.com. This website may become as potent a tool for pricing as search engines have been in finding general information. Now in a beta or trial mode, Zillow will allow buyers you to search for homes by address, providing an estimated price range along with property tax information.

Whilel competing services are offered by both Domania.com and Yahoo! Real Estate, Zillow allows a person to compare properties to similar homes in a particular area and offers updated median price ranges within the town, county, state and country. You can even prepare a more detailed estimate when adding more info, like the number of bedrooms and improvements.

“ZILLOWING” IN ON A HOME

If you “Zillow” your own home, most likely you will find the square feet, property taxes and comparable home prices to be accurate. But Zillow’s range of market values may disappoint you, given the recent sales in your area. This letdown will be a positive one, though, because it will serve as instructive and take the seller’s ego out of the equation.

The one constant in home pricing is that when you’re buying a property, you don’t always have complete data on what a fair price actually is. When selling, egos often result in overpricing of the home and the value of improvements. Zillow allows you to note home improvements to a property — whether it’s yours or someone else’s. Then it adjusts its estimated market price range, allowing you to avoid a number of popular home buying mistakes.

The surprise (which many prospective Florida real estate buyers are sure to have found out by now) is that almost no improvement will yield a dollar-for-dollar increase in market value, and a property may simply not be worth its list price. Kitchen and bath remodeling, for example, will net a higher total price than basement finishing, replacing a roof or windows. That’s been consistently proven cost-recovery research, and Zillow’s “refined value” calculation reflects it. Take a look at this and make sure your renovations actually pay off.

EMPOWERING THE HOMEOWNER

Remember that Zillow and other online tools simply provide price estimates, and there are plenty of bugs they need to work out. Zillow’s home database is currently small, so you’ll need to supplement it with other services. In the end, the art of pricing remains in your hands. You still need detailed information on how many (and what type) of homes are on the market in your price range.

This could be a major victory for sellers.

If you can market effectively on your own, sensibly adjust pricing for improvements and compare with similar properties, why would you even need a real estate agent? Should you succeed at the pricing game, you have not only replaced the broker, but boosted your sales gains by at least the agent’s commission, or 6 percent. If the market continues to ease, that’s certainly substantial.