Home Sales Price vs. Seller’s Home Value Estimate – 8%

home value estimate

One of the biggest selling mistakes a Portland homeowner can make is pricing their home incorrectly when it first goes on the real estate market. Unfortunately, it’s a mistake that happens all the time because there’s no perfect formula for pricing a home. 

Home Owners Overvalue by 8%.

According to the Journal of Housing Economics home owners on average value their properties 8% higher than the home’s actual market value.

Home Value vs. Home Sales Price

Before the home actually sells, any dollar amount attached to it is not actually a price — it’s a value.

What’s the difference? A value is what we think the home can sell for. The value is not up for negotiation. However, it’s the perceived difference in value that drives the negotiation when a buyer enters the picture. The final dollar amount that the buyer and seller agree on is the price of the home. 

Here’s an example: The seller of a three-bedroom home in Grant Park thinks the home is worth $650,000 because since she’s lived in the house, she’s added marble countertops and completely overhauled the landscaping. Her real estate agent runs a comparative market analysis and finds that the home could sell for somewhere around $630,000. They agree on a listing price (still a value) of $640,000. However, the first qualified buyer who comes along just wants a three-bedroom home in North Portland; he couldn’t give a hoot about marble or landscaping. He has his buyers’ agent write up an offer for $600,000 even. 

At this point, what we have are two values: What the seller and her real estate agent think the home is worth ($650,000), and what the buyer thinks the home is worth ($600,000). Neither is incorrect, but we still don’t have a price. 

After some negotiations, the homeowner agrees to sell her home for $625,000 and will take her prized perennials with her. Now we have a price: $625,000 is the actual amount that changes hands. It’s also the most important number in the real estate market. 

Determining Portland Home Value

Why does the sales price matter so much? It’s the number that all other home valuations are based on. Taken together, the individual prices that people are willing to pay for any of the 4,000-odd homes on the Portland real estate market determine the value of future homes. It all comes back to the Comparative Market Analysis we mentioned earlier, or CMA. It’s the most powerful tool in a real estate agent’s toolkit. A good CMA will take into account:

  • The final sales price of similar homes listed in the neighborhood. If insufficient data is available, the agent will cross-reference other Portland neighborhoods and homes.
  • The current market temperature: How fast are buyers swooping up homes?
  • The real estate agent’s own experience selling homes in that price range, neighborhood, age range, construction style, etc.

Of course, the final listing price recommendation won’t be based on the CMA alone. The agent should also take into account the homeowner’s motivation to sell — homes sell faster when the listing price is low. And, of course, as real estate agents we can make recommendations all day long, but the seller has the final say when it comes to the final listing price. 

Curious what your home is worth on the Portland market? Our top-rated sales team will create a CMA for you without obligation to list. Call us today!

June 28, 2019
AUTHOR

Stephen FitzMaurice

Stephen FitzMaurice, Realtor is a top 5% real estate agent in the U.S. and a top 1% agent in the Portland Metro. Principal Broker in Oregon, Managing Broker in Washington he has been licensed since 2003 for residential real estate sales in the Portland Metro area. Call him direct: 503-714-1111.

Pay less (4.5% commission max.) and get more with his top 1% listing team or buy your next home with his excellent top 1% buyer’s team. We work from Salem, Oregon to Vancouver, Washington and beyond. Check out our full services areas on the top menu.