How much is your home worth?
If you`re like most people, you think it`s worth what a real estate agent says you can sell it for.
But that`s not a precise answer, because pricing a house is not a precise science. And, from a seller`s point of view, that`s the problem: There isn`t one right price. In fact, when the Tribune asked three real estate agents to evaluate the same North Side house, the suggested listing prices varied by $157,000-from a low of $340,000 to a high of $497,000.
They varied so much, in part, because the agents made distinctions between offering the house for a quick sale (within a few months), without the seller doing any pre-sale fixup work; or offering the house for sale within no particular time frame, with the seller investing some money in repair/spruce- up work. Doing just a minimal amount of fixup work could make for as much as a $50,000 increase in the listing price, they said.
But the agents also differed because no two agents evaluate a house and a neighborhood in the same way, and because a multitude of factors are used in doing what they call a ”CMA” (comparative marketing analysis) of a property- everything from the type of buyer looking for houses in the area to whether any other house in the area has broken a certain price barrier.
To find out exactly what agents consider in pricing a house, and how much their prices for the same house might differ, we invited three agents, Mary Nack of Beliard, Gordon & Partners, Paul Boyd of Kahn Realty`s Lincoln Park office, and Renee Bennett of Draper & Kramer to tour Don and Lori Lynch`s home on the 1300 block of West Berwyn Avenue in Chicago`s Edgewater community.
We had our reasons for choosing this particular house. First, the owners had not yet even decided to sell their house. Second, it is one of the largest homes in an area in which property values have been increasing at a rate of more than 10 percent and sometimes as much as 25 percent annually. And, third, no home as grand has sold in Edgewater in the last five years.
We knew this would make it difficult for the agents to find ”good comps,” or comparable sales prices, for neighborhood homes-a necessary part of any CMA.
Then we gave each broker the same basic information about the house: The Lynches bought their home 11 years ago, about the time Edgewater was starting to get ”hot.”
Built in 1905 in the American Craftsman style, the 3,500-square-foot house (plus basement) has four bedrooms (one pink, another chartreuse); 1/2 baths; an extra-large living room with a large fireplace, a Spanish oak floor and an 11-foot-high beamed ceiling; a formal dining room (now used as a family room); a dated eat-in kitchen with a wood floor painted red; and an in-law apartment in the attic, with bedroom, living room, kitchen and bath. The house, which sits on a double lot, has a ceramic-tile roof (replaced six years ago), updated wiring and plumbing, a small patio and a one-car garage plus car port.
We asked the brokers to come up with two listing prices. One would be based on the owners having to sell quickly, say, within a few months. The other price would reflect an unlimited time frame for selling the home.
In putting together a CMA, brokers compare a house`s assets and liabilities-everything from lot size, to location, to number of bedrooms and bathrooms-with those of similar homes that have sold recently in the same neighborhood.
They also factor in the economy, current market conditions, how quickly the owner wants to sell the home, and special concerns (in this case, the Persian Gulf situation). All of this hard data is then weighed along with the agent`s gut reaction to the property, something that comes from years of working in the area.
On a Friday in early January, Nack, Boyd and Bennett toured the house and then explained the process they went through in compiling their CMAs.
Mary Nack
”Doing a CMA for the Lynch house was especially difficult,” Nack said.
”The biggest problem is that there haven`t been a lot of sales that you can compare this house to.”
Nack, who has been living in Edgewater and selling homes there for several years, said she first drove by the property. ”I wanted to get the feel of the house, and then I went to the office and pulled up the most expensive sales in the area,” she said.
Asked what she considered expensive, Nack said she looked for any property that sold for more than $300,000 in the last two years.
”Although two years is a long time, far longer than an appraiser (from a bank) will go back, I wanted to know what the history was because any buyer in this neighborhood has a significant amount of cash to spend and wants something he or she can`t get in Lincoln Park,” Nack explained.
Nack said (and Boyd and Bennett agreed) that the broker`s most important task is to pinpoint the type of buyer who will be looking at the house, and how much money that buyer has to spend.
”The buyer who would look at this house is willing to go up to $500,000 for something out here, but there is a psychological barrier at that point,” Nack said. ”To get this buyer over that number means the property has to be a showcase with a gorgeous master bath, new Euro-style kitchen and loads of other amenities.
”But in this case, we`re looking at a premier house that is dated in places. So I have looked in other neighborhoods over the past two years just to get an idea of what people are paying for this type of property.”
Nack`s CMA included all active, pending, expired and sold listings in the Multiple Listing Service`s Area 50 of the city, which extends north from Irving Park Road up to Rogers Park. She then looked specifically at homes in the Lakewood-Balmoral area of Edgewater that sold for more than $300,000.
One problem all the agents encountered was that no home in the neighborhood had sold for more than $375,000.
”I felt that the Lynches` home should sell for more than $400,000, but it would have to be the first one in the neighborhood,” she said. ”But I know that (price) is what the Lincoln Park and De Paul buyers are expecting to spend, because they can`t touch a piece of property like this in those neighborhoods for less than $750,000.”
After warning that her numbers were only for this day, a Friday in January before the Persian Gulf war had started, Nack said she would feel comfortable listing the house between $400,000 and $460,000.
”It`s my gut reaction,” Nack said, ”and the range really depends on what the home buyer would be willing to do to the house before it went on the market.
”For example, if they were willing to repaint, add flowers or do some other small changes, then I would list it at the higher number.”
Paul Boyd
Paul Boyd, as he always does, wanted to look over the house twice before deciding on a final listing price.
”The first time I look with my right brain, with my heart and my imagination. The second time I look at it with my left brain, for the numbers and financing,” he said.
Boyd said that his 13 years spent living in the Edgewater community have helped him in determining listing prices for properties in the area.
Although Boyd`s gut reaction told him the Lynches` house would be worth at least $400,000, he acknowledged that the house would be worth much more if another house were to break the $400,000 barrier.
”There`s an increased value to waiting, but that doesn`t work if you have to sell, and it`s no guarantee,” Boyd explained.
For his CMA, Boyd gave an ”A,” ”B” or ”C” grade to each of several homes in Edgewater that he felt were comparable to the Lynch house. Then he attached the same grading system to the Lynch home.
Boyd gave the design, layout and decor of the Lynch home an ”A.” He felt the house`s location within the neighborhood, the mechanical systems and overall condition of the home merited a ”B.” Finally, the kitchen, baths and third-floor attic rated a ”C.”
According to Boyd`s system, an ”A” in this Lakewood-Balmoral neighborhood is worth $125 per square foot. A ”B” is worth $120 per square foot and a ”C” is worth $100 per square foot.
After multiplying all of these figures, he came up with a listing price of $420,000. He discounted that number by $20,000 because of the concern over the Persian Gulf crisis, and because no other home in the neighborhood has sold for more than $375,000.
However, Boyd said he would dramatically raise his listing price if the homeowners would invest some time and money into refurbishing and repainting portions of their home before listing it.
Boyd said that if the Lynches were willing to invest $15,000, he would raise the listing price of the house to $475,000 or $485,000.
Renee Bennett
Renee Bennett began her CMA by stating that it`s a very different housing market than it was two years ago.
”We`re not selling properties as quickly or for as much money as we were,” she said. ”It`s customarily taking about six months of marketing time to sell a house.”
After comparing the Lynch house to similar properties in the area, she said her price would depend on how quickly the homeowners would want to sell. ”Because nothing has really sold in this neighborhood for more than $360,000 to $375,000, I`d list the house for $340,000 to sell it quickly,”
she said. ”If the homeowners can afford to wait awhile, I would definitely list it for a higher price.
”If the homeowners were willing to really fix up the house, I would be willing to slip it under $500,000, maybe at $497,000,” Bennett said.
”However, I would only do so with an extended listing agreement and the understanding that we weren`t going to hold out for the buyer who might be three years down the road,” she added.
Whose price is right?
After spending more than five hours with the three brokers and a reporter, Lori Lynch was a bit worn out.
”I didn`t realize that after coming through the house and analyzing similar data, they would have such different opinions about what price the house should be listed at,” Lynch said.
She said that Boyd, who had commented during his evaluation that the seller always wants to sell at a slightly higher price than the agent, was right.
”Brokers do want to market the property for less than the homeowner wants, but most people need a dose of reality,” she said. ”I was just encouraged that we could go from $340,000 to the upper 4`s with some work. It is a reason to hold onto my dream.”
As for the condition of her home, Lynch felt all the brokers accurately pinpointed the things she and her husband need to do to the home to maximize its sales potential. (Among the specific suggestions: updating the window treatments; redoing the kitchen floor; changing the kitchen countertops to white laminate; stripping old wallpaper and painting; planting flowers in the yard.)
When asked which listing price she felt most comfortable with, Lynch replied with a laugh, ”The highest one. I think homeowners always want to try to get the most money for their houses, even if they don`t believe the broker can get it for them.”
Still, Lynch said, she was surprised by the difference in numbers.
A fourth opinion?
So, what are homeowners like her to do when CMAs are all over the board?
”Sellers who are uncomfortable with the recommended listing prices they are given by several brokers should first consult (yet another) broker, who they know is knowledgeable about their area,” said Annetta Grey, a senior vice president of Rubloff and vice president of the North Side Real Estate Board.
Grey also said that the would-be seller should call back the first three brokers and ask them if they have had any other thoughts about the property, or if they have changed their mind about the listing price.
”Choosing the correct listing price for your house is important, and it is a little like negotiating a contract. Give the brokers another chance to do it,” she advised.
Taking Grey`s advice, we went back to our three brokers and asked them to explain their numbers.
”I may have gone too low on the fast sale number,” Bennett said, ”but in a real comparative marketing analysis, you go back to your office, talk with other brokers, and maybe see the house several times before you give your final number. Walking in cold isn`t really the best option.”
Mary Nack, whose listing prices ranged from $400,000 to $460,000, said she tries to be optimistic, but not irresponsible when choosing a listing price for a home, particularly one that has many unique features.
Nack said brokers are often tempted to give homeowners a high price that they know will secure the listing, when they truly believe a lower price is more realistic.
”It`s particularly tough when you know the seller is calling three or four other brokers,” she said. ”I do feel, however, that we are working for the seller, and we have a responsibility to get the most we can if the seller will let us do that. If the seller has the time to wait and can afford to play the market, then why not see if you can push the edge?”
Boyd said that one reason the listing prices varied so much was because there are a lot of ”ifs” in real estate.
”If they fix up the house, if the Persian Gulf war is settled, if the economy improves, if another house in the neighborhood sells for more than $400,000, then all the numbers we`ve done on this house may change,” Boyd said.
In other words, there`s no right price.
”You have to remember that there are brokers who undersell homes to do it quickly. There are brokers who are mid-range brokers and there are those who really push the market,” Boyd said. ”A would-be seller has to determine which broker really understands the market, and which broker is being completely honest.
”But if the number the seller wants is so unrealistic, it is defeating everyone,” Boyd added. ”There are listings I won`t take because I know they won`t sell.”
