Analyzing Your Home as if it Were an Investment
We look at subdivisions, like they are mutual funds. When you own a fund, you would like to see indicators that show it to be a good investment over a 5 year period. Would you like to see what that value is, and how we determine it?
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Solds
Pretty much everyone looks at recent solds (or comparables) that are like-kind properties near the subject property. For our investment strategy, solds are often only 15% of our process in determining a property value. Some buyers put 100% of their opinion based on solds. Of the 4 property types, solds are often the least important to our analysis as solds are “old news.”
Active
Properties that are still for sale (actives) can often tell an investor (or regular buyer) the reality of the market. When a like-kind property is for sale, and has been on the market for 60, 90, or over 120 days, it is evident that buyers are not agreeing with the asking price of those properties. Actives are a benchmark on how buyers are feeling about the immediate market. And their opinions affect appreciation.
Failed
Failed listings, such as properties that expired with an agent, or were canceled listings, often clearly tell an investor (or a regular buyer) what other buyers rejected. Failed listings with high days on market are guideposts that tell a buyer where a price cannot go. It is one of the best indicators of how buyers feel about prices and features. Failed can often, but not always mean, the property was overpriced. Our goal is to find out what that price “was supposed to be.”
Everything Under Contract
To round out our study of SAFE records, are the under contract properties. This is actually the first category we study when attempting to establish the value of a property. Pendings reflect what buyers are “thinking right now.”
If we are evaluating your property, or if you have asked us to review a property that you want to buy, it is important to view all 4 statuses of SAFE records.
Velocity
If you really want to geek out and look at trends, velocity can tell you in a brief snapshot the health of the market over the next 6 months.
Sold vs Failed
In 2007-2009 there were not many sold properties, however there were a tremendous amount of properties that did not sell. In fact in some areas, 60-70% of listings did not sell. Properties were depreciating per month and sellers chose not to lower their asking price. The sad thing is, whether they lowered their price or not, their value was plummeting.
As you look at a market to purchase a property in, or if you are selling, we encourage you to look beyond the sold records and view the “sold vs failed” stats. It is a super easy request you can make of an agent or an investor. We recommend that you do not buy or sell without knowing this Velocity stat.
Active vs Pending
In 2007-2009 we experienced markets where there were 50 properties for sale, yet only 1 under contract. The market was in a “free fall.” During Covid, there were markets that had 1 property for sale and 35 under contract. Prices were rising each and every week.
The active vs pending stats are a secondary effect of the sold vs failed. Sold vs failed is a leading indicator, causing the good or bad results in the active vs pending present day market. If there are alot of failed listings, the active (for sale properties) will stall out, causing prices to drop and days on market to climb.
What does all of that mean? It means your property appreciates in value based on the absence of failed listings, combined with the over abundance of motivated buyers. That is a great scenario. However, a property depreciates when there are an abundance of failed listings, and a lack of motivated buyers.
Always know your velocity when you are buying or selling. One more fun fact. The price point below your property heats up or cools down your market. If you are selling a property for $1,000,000 you are going to want the properties that are listed for $500,000 to $800,000 to be selling quickly. If the market below you is cool, and high days on market, then traditionally the next price point up, will not be doing well. However, if the market below yours is hot, hot, hot and everything is selling fast, your price point is most likely heating up and your value rising.
HOW WE DETERMINE PROPERTY VALUE
The formulas we use apply to the value of investment property, also applies to regular property sales. While we purchase property, and help other investors across the USA buy and sell property, we have over 20 years experience working with relocation companies moving employees via Fox Financial Relocation. In those cases it is essential to understand how to “determine and defend” property value.
Do you have a property that you would like evaluated? There are times we can discover when you, as the seller, should not accept our offer. There are times it makes sense that our offer is fair. We are objective enough to see the difference.