Pop quiz: Put a price on your house-one that will attract buyers but give you the kind of profit you`re looking for.
If you`re like most people, your answer will be: about $10 more than what your neighbors got last week for their house. Or, if you`ve called in the professionals, you believe what your real estate broker tells you.
If that seems imprecise, it`s because pricing a home is more of a subjective than objective business.
Last year, when the Tribune asked three real estate agents to evaluate a North Side house, the suggested listing prices varied by $157,000-from a low of $340,000 to a high of $497,000.
Their reasons for the wide range in listing prices varied, too. A low-end price was suggested if the homeowner needed to sell within a few months and did not want to spend any money sprucing up the house. A high-end price was suggested if the homeowner wanted to undertake a long-range marketing plan and make some cosmetic improvements to the property.
At the heart of each proposal backing up the suggested listing price was a CMA, a comparative marketing analysis. To help determine a correct listing price, an agent looks at comparable properties-called comps-in the
neighborhood, and the prices they sold for. The agent then analyzes the data to come up with a listing price.
A challenge to price
This year, we decided to ask three more agents to come up with a CMA for a house in Flossmoor. We invited Angie Allen of Baird & Warner, Susan Bodnar Jeros of Coldwell Banker First American and Priscilla Ball of Re/Max South Suburban to tour John and Carla Tinberg`s ranch home on Holbrook Road in that south suburb.
We chose the Tinberg home because we knew it would be difficult for the agents to come up with comparables. Built in 1950, the 3,700-square-foot home sits on 1.3 acres. Land on either side of the house is being developed, with prices for homes in one of the developments starting at $500,000. Behind the Tinberg house is a development of older homes with prices starting at around $80,000.
And while Flossmoor has experienced steady appreciation in home prices, it has been substantially slower than in comparable communities in the northern and western suburbs. The Tinbergs bought the home in 1988 for $187,000, so we wanted to test the area`s appreciation in the last five years. In addition, the Tinbergs have done a considerable amount of renovation work. Originally a 5-bedroom, 2 1/2-bathroom house, John Tinberg created a master bedroom suite by combining two smaller bedrooms.
He also added a 500-square-foot game room with a woodburning fireplace and stacked windows facing the garden. The eat-in kitchen has been completely redone with top-of-the-line appliances and custom cabinets. There is a formal dining room with a French door overlooking a large brick patio.
The home`s living room leads off to the master bedroom wing and the children`s wing. There also are a small guest room, a den and a family room that leads into the game room.
The house has a three-car attached garage, an undated roof-”It was there when we got here and we haven`t touched it,” says Carla-and some newer mechanicals. The house is on public water and sewer lines, although there is a well for watering the garden.
The house`s decor is neutral, with everything in tones of white, taupe and beige. The front driveway was recently redone in embossed concrete, and the garden is manicured.
Each of the agents was given the same basic information about the house. Longtime Flossmoor residents, Allen, Jeros and Ball were familiar with the house, but before the CMA presentation each agent drove by the house to get a closer look.
When putting together a formal CMA, brokers compare a house`s assets and liabilities. Everything is considered, from the size of the lot, to the location of the home, to the school district it lies in, to the number of bedrooms and bathrooms it has. All these features are compared with those of like homes that have sold recently in the same neighborhood.
They also factor in the economy, current market conditions and special items of note. All the numbers are weighed together with the agent`s gut reaction to the property, something that comes from years of selling homes in the same suburbs.
On a Friday in late July, Allen, Jeros and Ball toured the house, then made their formal presentation to John and Carla Tinberg.
Angie Allen
”This is a very emotional home. There are a lot of nice touches, like the French doors in the dining room, and the rooms are warm and personal,”
said Allen, a former schoolteacher who has spent the last 15 years selling real estate in Flossmoor.
But that doesn`t make her job any easier.
”Right now the market is slow. The house on 3 acres (to the east) next door took 415 days to sell. It was listed at $280,000 and the (new) owner demolished the home and has now subdivided the land,” Allen said, noting that the lots are listed for sale at $79,000 each.
The development factor played a significant role for all three agents, who said that the type of housing that goes in will be vital to correctly projecting this home`s current value and future appreciation.
The development at Dixie Highway and Holbrook Road, on the Tinbergs`
corner, is 9 acres subdivided into 11 lots, with each lot selling for $150,000. Several homes are already under construction, Allen said, and will probably start at $500,000.
When drawing up a CMA for the Tinbergs, Allen said, she used two approaches: comparatives and the replacement cost.
”The comps aren`t good because so many of the older houses have been torn down, bought for the value of the land,” she pointed out.
And because Flossmoor has only a few ranch-style homes, putting together a CMA is more difficult. In addition, Holbrook Road is rather isolated as far as suburban neighborhoods go, and the owner must rely on his car. There are no sidewalks here to roll up at 5 p.m.
”On the one hand, people want their privacy. But most people with children want to be able to walk to the park, train, or even some shopping,” Allen said.
Allen`s comparables included several homes of around 3,000 square feet, which started at $260,000, as well as a home on 2 acres that was sold strictly for the land value at $325,000. However, Allen did not feel her comps correctly factored in the Tinbergs` renovation and expansion work.
Using her replacement cost approach method, she assigned a land value of $125,000 to the Tinbergs` 1.3-acre lot, plus a value of $200,000 to $250,000 for the house, for a total value of $350,000 to $375,000.
Susan Bodnar Jeros
A lifelong resident of Flossmoor and current president of the South Suburban Board of Realtors, Jeros believes in the suburb`s continued appreciation because of the value of homes, the older, wooded atmosphere and the excellent school system.
And she liked the additions and decorations the Tinbergs had chosen for their home.
”The house is simply stunning,” she said. ”The quality of materials and workmanship come through clearly. Sometimes when people make improvements to their home, they overimprove the house. But the Tinbergs have made quality- of-life improvements which add to the overall value of the home.”
Still, in looking over the home, Jeros found some potential resistance factors, some of which she felt the Tinbergs should think about rectifying in order to maximize the home`s appreciation.
Certain things can`t be changed, she noted. The location is quite near a busy highway, and the home backs up to unincorporated areas that are seeking to be annexed to Flossmoor for the school system.
On the other hand, there are some improvements the Tinbergs could make that would directly add to the sales price of the home, Jeros said.
”You could do something with the basement, like separate out the storage facility from the heating equipment, and bring the laundry facilities up to the first floor. You might want to improve the dated fixtures in the children`s bath, and replace the ceiling in the family room,” Jeros suggested.
After looking at the physical characteristics of the home, Jeros displayed the more than 20 comps she used to determine her suggested listing price. Jeros looked at different subdivisions in the area that have homes priced between $270,000 and $1 million. Like Allen, Jeros thought it was important to consider the price of the lot, because so many homes are bought for the land.
Jeros said the average marketing time for homes in the Tinbergs` price range is around 60 days. ”You want to price your home within 3 to 5 percent of where you want to sell it because otherwise, you sit on the market, which defeats the purpose. The house gets old.”
Jeros said she would feel comfortable listing the home between $389,000 and $425,000, but would almost certainly list the home over $400,000.
”It depends what season it is,” she said. ”If you listed the house in winter, which is the slowest selling season, I`d list it in the upper $300,000 range. If you put it on in the spring, I`d list it over $400,000.
Priscilla Ball
”I`m very into numbers,” Priscilla Ball began, passing out sheets of paper. ”I believe in looking closely at market value and then sticking to that when you actually come up with your listing price.”
”The thing you shouldn`t do, is pick your Realtor because of the price she says you can get from your house,” Ball added.
On one sheet, Ball pointed to the 40 properties that had been listed for more than $300,000 in Flossmoor since January.
”Forty properties are listed and not one has a deal pending. Forty properties is a lot. The market is flat,” she said.
After spending some time comparing her company`s market share with other real estate firms` in the area, Ball noted that properties priced under $300,000 were moving.
”In the $250,000 to $300,000 range, there have been 15 properties on the market since January, of which five have closed and two are pending,” she said.
Ball said she uses several principles to determine a property`s listing price, including cost and market value.
To calculate cost, Ball had considered all of the improvements the Tinbergs had made to the home, and assigned a numerical value to them. Each of the additional values was tacked onto the price the Tinbergs had paid for the house in 1988. For example, Ball allotted $15,000-75 percent of the cost-for the new kitchen. She gave another $15,000 for the driveway, and tacked on 5 percent annual appreciation, for an additional $38,490.
”Add all these things up and you get a price or value for the home. Then I looked at comparable homes to get an idea of the market value,” Ball said. She compared the Tinbergs` home to three homes in Flossmoor, whose sales prices she adjusted to make them equal. The prices ranged from $285,000 to $299,000.
Ball also looked at the home`s resistance factors, including its proximity to Holbrook Road and the uncertain future of the two development projects flanking the home. She said bedrooms three and four, as well as the basement, are small, though the house has excellent storage.
”I would suggest that they add a glamor bath, put a washer and dryer on the first floor, and refinish the hardwood floors if they want to up the price,” Ball suggested.
”Right now I`d price the home as close to $300,000 as possible, perhaps going as high as $315,000. But I`d suggest they wait a year, because once those developments start going, the unknown factor could work in their favor,” she added.
Who`s right?
After spending a long morning listening and nibbling on doughnuts, John and Carla Tinberg said they believed in each agent and what each had to say.
”If we`d only had one person come in here, we would have gone with their recommendation,” Carla said.
Still, they didn`t believe the prices would be so high from Allen and Jeros.
”I didn`t think the prices would be as high as the high number, but my gut feeling is I`d be upset about giving the house away,” Carla said. ”We`ve put a lot of time and money into fixing up the house.”
On the other hand, both Carla and John said they respected the realism of Ball`s suggested listing price, although it was a good $100,000 below the other suggested listing prices.
”They were each articulate and believable and well prepared,” said John.
So what do you do when the three agents are more than $100,000 apart in their suggested listing prices?
According to Joanne Friedlander, managing broker of Kahn Realty`s Highland Park office, the first thing is to go back to the comps.
”See if each agent provided the same comps or used different ones. If they used different ones, the homeowner should try to ascertain which comps are the best. Sometimes an inexperienced broker who isn`t knowledgeable about the market would choose comps that are not appropriate or are of a different area or a different age,” Friedlander suggested.
For a home that is unique, Friedlander suggested the homeowner should take the comps that most closely match up to the home and attach a numerical value to each attribute, such as $10,000 per bedroom, or $5,000 for a bathroom. Using these values, adjust your home`s price up or down,
compensating for differences between your home and the comps.
”It`s easy to do a valuation in a subdivision, but a custom house is tough. Sometimes if it`s a newer house, you can do replacement value and just add up how much the home would cost to replace today,” she said.
But above all, Friedlander recommended sellers take a cold, hard look at the numbers and presentations.
”This is a subjective business and brokers are very self-confident that they know exactly how much a house should sell for,” she said. ”I`d like to have a dime for every time they get it wrong.”
