Housing Market - Finding the Value

I got a call yesterday from the owner of an older home in Phoenix asking how much their house might sell for. Until a couple of years ago, the property had been home to the couple for 20+ years. Over time they'd expanded it (more than doubled its size), updated the kitchen, decorated it to suit themselves, enjoyed the pool - it was home. Then, when their neighborhood had aged and the market dropped, came a great job opportunity in another city. They moved away, leased it out, the lease ends in February and now they have a decision to make. Find another tenant? Sell? Or ...?

Ideally, to determine list price I'd find two or three homes built within about five years of the house, similar in size and condition, with pools, in the same subdivision that have sold within the past three months. I can't make that work - so I'm working outside the subdivision but within a mile and a half radius of the property. What's been selling falls pretty much into two categories - distress sales, where the house - at least in pictures - looks pretty sadly neglected, and remodels - with gorgeous kitchens, updated bathrooms, new flooring and decorator touches.

I haven't seen their house for a couple of years, so the best I can do is give them a range. If it's looking pitiful, given its age and the neighborhood and how the tenants took care of it, it'll probably be in the mid to high $30s per square foot. If it is knock-your-sox off stunning, with no maintenance issues, it could be in the high $50s per square foot. Anyway you look at it, at least from a seller's standpoint, the figure is disappointing.

What complicates real estate transactions is - of course - purchase money. Someone who is paying cash wants to be sure he is not over-paying, but may be willing to over-pay if the property is everything he wants. However, someone who is borrowing from a lender will have an appraisal before the lender will close the transaction. The appraised value will dictate how much the lender will lend. Market value is really determined not by what a willing buyer will pay (unless he's a cash buyer) but by what a willing lender will lend.

Price it too high and a buyer won't look. Price it too low (bait) and you're in violation of the Real Estate Commissioner standards.

So what I'll end up telling the homeowners is that, depending upon condition, and depending on how quickly they need to sell, their initial list price falls somewhere between x and y - which in this case is a spread of about $30K. When a seller owes more than they expect a buyer to pay, the initial pricing decision is on the low end - and ultimately in a short sale the seller's lender will determine the sales price.

Someday, foreclosures and short sales may be just a memory - I hope. Until then, they are sure giving buyers a lot of bargain-priced properties to choose from.