Each year in the spring, hope springs eternal. Birds leave the nest and flowers bloom. The grass wakes up from its winter slumber (as do the weeds!) and the week vacation on some sandy shore seems almost within reach.
You know what else happens in the spring? Real Estate.
Sometime in late February (depending on the weather), the spring market begins and buyers and sellers begin their 4 month mating ritual to exchange housing. As this is being written, paint colors are being chosen, Pinterest Boards are being added to feverishly and all of the real estate websites are being searched and crawled with the hopes of finding that perfect house on the perfect street…and at the perfect price.
But what is the perfect price? It depends on who you ask.
How Housing is Valued
For many years (and by ‘many’ I mean ‘all’), my industry was taught that we should encourage our clients to value real estate by finding the three closest homes in size, location and features (which sold most recently) and use some blended average of the sales prices to drive at the value. This ‘Comparable Sale’ technique (sometimes called ‘Comps’ or ‘Comping’) has been the basis for real estate valuations for as long as real estate sales have existed.
But Does ‘Comping’ Work?
It can, but not always.
Take a look at the chart below of the past two years of new pending contracts across the Richmond region (this measures WHEN houses are going under contract and is the best way to gauge market strength)
What you see is an extremely strong seasonality to sales. From the peak in April/May to October/September, you see activity fall by 35-40%! Do you think impacts values? You bet.
Additionally, check this out. Below is chart showing the inventory ebbs and flows throughout the year.
So as the market slows in October, inventory tends to be at its highest levels. Do you think someone making a buying decision in October is under the same pressure as someone in April? Probably not…
(For additional market statistics showing Days on Market, Median Prices and Ask/Sale Ratio, visit our page on STATS)
Comps Can Be Misleading
The point is that using ‘Comps’ only gets you part of the way there. Understanding the seasonality of the market is huge when pricing housing, especially as we enter the spring. If your agent’s pricing analysis does not take these factors into account, then you are not getting the best advice.