Inventory this, price that…Blah Blah Blah…what does it all mean?!?
You probably don’t really care what the average cost per square foot is or what the average price for an area is…what you want to know is: “What is my house worth?”, “How expensive are homes in Colorado Springs?” or “Am I getting a good deal on this house I like?” When you start reading all this statistical mumbo jumbo (my site not excluded). Do your eyes glaze and you think to yourself, “What does all this mean?!?” This entry is home price data explained in the simplest manner I know how.
If it’s any consolation, I empathize with you. As a seasoned professional, I find my eyes glaze with too much information as well! Unless it is specifically helping me make a decision (or advise a client) in a particular situation, I don’t really care either. So let’s assume you stumbled on my site and you do care because you have a specific situation you are trying to figure out….here’s some helpful thoughts on how you interpret market data.
Home Price Data Explained
Realtors use market data kind of like a fortune teller reads tea leaves. The data itself does not give specific answers, but it helps you try to look “under the covers'” to understand what might be going on in the market that will affect a homes value over time.
Ok…this one might seem kind of like “Duh!” but I wanted to start with an easy one to ease our way into this subject. Housing SHOULD be an investment…not just a place to live. You want to make sure that your home has the best chance to appreciate over time. If you are planning to be here short term, you want to make sure that the home will appreciate enough during your stay so that you can make money (or at least break even). While past appreciation rates won’t guarantee future results, it’s a good indicator of potential future performance.
Average Sales Price
Average sales price will help you determine where the house is positioned in the area you are looking. When looking at average sale price, it’s best if you can look at the specific neighborhood you are trying to buy in or a very small geographic area. Different neighborhoods in the same area can have huge differences in pricing. Also, when looking at average price, be sure you are looking at similar sized homes.
Sellers: Look at the specific neighborhood you live in not neighborhoods in the general area. If there is nothing extraordinary about your home, you should assume your home is worth about what the average is (a little more or less depending on condition). If your home has an unfinished basement you can’t expect to get the same price for your home as your neighbors who’s was finished. If you have beautiful upgrades that makes your home nicer than your neighbors (or maybe you are on a killer lot), you should expect more.
Buyers: There is an old adage in Real Estate: You never want to be the biggest or the best. That’s why you look at average sales price. If you are looking at a $600,000 house in a neighborhood where the average sale is about $450,000 you may want to think twice.
Cost Per Square Foot
This is probably one of the most helpful indications of home value. This breaks down the cost of a home based on the size of the home (including basement space) and can vary widely. There are neighborhoods in Colorado Springs where a home can sell for $500 dollars per square foot and neighborhoods where if you are spending more than $150 per square foot you are paying to much. That is why looking at an average is important (but it is not the be all end all). Remember, it’s an AVERAGE…that means some will be higher and some will be lower. So if you have (or are looking at) one of the nicest homes in the neighborhood, it will sell for higher than average….why? Because it’s worth more!
One more note on cost per square foot: As homes get bigger (in the same neighborhood) they will sell for less per square foot. So if you are looking in a neighborhood that has big homes and small homes, you might see small homes selling for $500 per foot while big homes are selling for $150 per foot. With that in mind, be sure you are comparing similar sized homes to the subject home (within about 20% of the same size).
Days On Market
If a home has high days on market (way above average) you should pause and ask why? Is it because of an inferior layout or location? Those are things you can’t change and I would think twice. If it’s because it’s overpriced or in bad shape, those are things you can fix. Days on market can be an indication of the amount of power you will have in negotiations: The longer a home is on the market, the more power the buyer (feels) they have. If a home has just hit the market, a seller might not budge on price much because they might feel if they wait it out, a better offer will come.
Is volume up or down from last year? This can be an indication of how “hot” the market is. If volume is up you might not have as much negotiation power as a buyer. As a seller, you might be able to price your house a little bit higher because more homes are moving in the area which should drop inventory (other choices for buyers). If volume is down, it could be just a statistical swing in the market…or is there something else? Maybe a new tax in the area? A proposed road project going through? If the volume numbers are significantly less than last year (or less than surrounding neighborhoods), you might want to research if there is a reason for that.
There is no right or wrong answer and there will always be exceptions to the rules but market data can help you determine what’s going on in the area where you are looking to buy or sell a house. As a buyer, you can look at this information to help you decide where to buy, how much to spend, whether you stand a good chance to make money on your house, and set your expectations with regards to how much negotiation power you will have. As a seller, you can use this information to set your expectations, assess the strength of the market, whether it’s a good choice for you to attempt to sell your home, and choose how aggressively you need to prepare and price your home to get it sold in the time frame you need. HOWEVER, at the end of the day, a buyer MUST be willing to buy and a seller MUST be willing to sell to make a transaction happen. So while you SHOULD use this information to make an intelligent choice, don’t let it get in the way of accomplishing your goals.