Yesterday was day 10 of April's round of GRIT. Sundays are stretchy-stretchy days so the dog joined me for yoga. We're about three weeks out from the start of May GRIT - hit me up if you're thinking about joining us and have questions.

If you've been following, you know that each day there's a principle upon which to reflect and write. It doesn't have to be lengthy - some folks write just a few sentences. I tend towards the longer side - here's mine from yesterday which addresses a problem that we'll end up having in the post-corona real estate market.

Day 9 - I Master Situational Strategy

UNIT: #BoatCrew2

METRICS: 37 Minute yoga session with the dog

CONTEXT:

In the business of real estate, new agents are taught to use the Comparative Market Analysis - or CMA as they are known - to establish the price at which someone should list or buy a house.

The beauty of a CMA lies in simplicity. Basically, you take the house for which you need the value, find 3 or 4 like it, and average the sale prices.

Presto! You have your value.

The problem is, it doesn’t take into account various situations that could affect the value of a house.

In other words, the basic CMA is too simple.

I remember a time when an agent in my office was terribly upset that her buyers had lost out on a home in a new subdivision where the builder had completed the first four or five homes of what would be hundreds. Her clients had been looking for quite some time and had finally found the perfect house nearing completion.

When the agent did her CMA, she calculated a price of around $15,000 less than the asking price on the house her clients wanted, and she suggested they make an offer reflecting this figure.

When the offer was rejected, she called me very upset. “I couldn’t tell them to offer more,” she said, “according to the CMA, they would have been overpaying by $15,000!”

Kudos to her, of course, for wanting to protect her clients. In a business where many are out only to make a sale and value a buck over a relationship, it’s nice to see. The problem, however, was that her CMA failed to take into account the situation with the builder.

Being a brand new neighborhood, the builder had pre-sold the first couple homes at a discount to get things rolling, and they are under no obligation whatsoever to maintain those prices. Based on market conditions, the number of people coming through model homes, and other factors, prices often adjust over relatively short periods.

In this case, a hot neighborhood in a great school district meant they could push prices up quickly, which is why the agent’s offer was rejected rather than countered. Yes, they’d sold two of the same houses for $15,000 less 45 days ago, but that does not mean they have to do it today, and another buyer was willing to pay that price.

Who knows where the real estate market is heading now based on the pandemic, but if we wind up in a housing slump, we’ll see a lot of this in reverse. CMA’s will show that a house is worth a certain amount but, since it won’t take into account rising inventory or falling prices, those who rely too heavily on this method of valuation will find their asking prices are too high.

Buying and selling a house is like anything else - it all depends on the situation. It would be nice if there were some simple, standardized way to determine the value of a house. But that’s simply not the case.