Comps not always a good guide for pricing a home

(As seen in the 3/1/19 Ledger column)

Located slightly into Williamson County, the house at 2492 Old Natchez Trace sold last week for $805,000, which was $55,000 more than list price. Well, $55,000 more than the latest list price. It had previously been listed for $955,000.

So is actually sold for $150,000 less than list price, if that list price had been able to stick around for a few more weeks.

It would be reasonable to ask why the owner would have gone with such a high number to begin the listing. It’s simple: The owner had it appraised by a licensed appraiser, and his data showed that the house was worth $955,000 based on comparable sales.

Therein lies the rub.

Buyers and sellers alike are caught up in comparable sales, and that’s how the real estate minds are wired. Most think it is the way that values have been assigned since the beginning of time. Comps and price per square foot are etched into the brain matter and are the gospel according to many buyers.

The problem, however, is the houses included in those comps are not on the market when the listing goes into effect. Neither are the buyers. Whatever those houses had that checked the boxes or emotions of those buyers is ancient history.

Those buyers are merely humans traveling through a real estate time warp with only the homes that are available at that particular time.

If the buyers of the comparable sales that the appraiser used were still out there, they would have paid $955,000. But they are buyers no more. They are neither prospects nor seekers, and they are not the clients of Realtors.

They have shed all of those titles and are now homeowners, pure and simple. Some are also known borrowers, but how much they borrowed has no effect on value.

What those people paid should matter not. But alas, when they signed the scores of dotted lines at their closings, they changed the world. From that day forward, the listing converted to a comp and would rule the day for six months.

In some instances, buyers are not able to purchase a home because of a prior credit transgression, or perhaps they became self-employed and have no historic financial data on their new job.

In these cases, they often need to find homes that will allow owner terms.

Now ask yourself this question: Who would allow a buyer to buy their house under an owner-term situation?

Owner terms means the seller is the bank. The buyer pays a down payment at closing then the owner receives monthly payments for a specified time. Title to the property transfers so that the seller has no future liability as far as insurance, taxes and maintenance are concerned.

In these situations, the buyers usually overpay for the house since they are unable to find someone else willing to sell under this arrangement.

That comp counts the same as an all-cash transaction.

And the pendulum swings both ways. If a person with a wheel barrow full of cash strides into a vacant property and offers to close the next week with no inspection – and therefore no repairs – they get a discount over the buyer with appraisal, inspection contingency or loan contingencies.

Once again that becomes a comp.

Comps schmomps. Any appraiser will admit a house is worth whatever someone will pay for it. Terms matter. There have been real estate agents over the years who spend hundreds of hours pouring over comp after comp and even calling the buyers’ and sellers’ agents on closed properties.

With that knowledge of the historical data, it is not surprising that the house did not sell for appraised value, nor is it surprising that it received multiple offers and sold for more than the lower list price.

With 5,034 square feet on 2.44 acres with six bedrooms – a master on each level – four full bathrooms and a powder room, it is $955,000 worthy. The only problem is the buyers of the six comparable sales already bought other homes within the last six months.

George Rowe, the listing agent and a recovering attorney, recently accepted the position of principal broker at the newly established Compass Tennessee, LLC. Additionally, he serves on the leadership team at the Greater Nashville Realtors.

While he receives no extra value for this, but he can tickle the ivories in a manner that rivals Billy Joel, Elton John and Leon Russell, and falls only slightly short of Beethoven. At least that is how he comps outs when compared to historic piano men.

The buyer’s agent in a multiple-offer scenario always emerges as the hero, and Lara Kirby of Kirby Real Estate is a super hero. Here’s why. First, she secured the property, and that alone is a feat and the first step.

Then, although the property was being sold “as-is,” she was able to negotiate a sizable repair allowance.

Another fallacy in real estate is the “as-is” sale. The contract can state “as-is” all it wants, but the seller has few options when a serious condition exists. They could terminate the contract, but they are going to have to either disclose to the next buyers or fix it anyway.

So as-is means as-is if everything is in excellent condition.

Richard Courtney is a licensed real estate broker with Christianson, Patterson, Courtney, and Associates and can be reached at [email protected].